The Australian Competition and Consumer Commission will not oppose the proposed acquisition by the Aluminium Corporation of China (Chinalco) of various interests in Rio Tinto plc and Rio Tinto Limited (Rio Tinto) as it would be unlikely to result in a substantial lessening of competition.
Chinalco proposes to acquire interests in relation to Rio Tinto's iron ore, bauxite, alumina, aluminium and copper assets, in addition to a potential increased equity interest of up to 18 per cent in the Rio Tinto parent entity.
The ACCC reviewed the proposed acquisition according to section 50 of the Trade Practices Act 1974 which prevents mergers and acquisitions that would be likely to substantially lessen competition in a market in Australia.
The ACCC's role differs from that of the Foreign Investment Review Board (FIRB), which is also reviewing this proposed acquisition. The FIRB examines proposals by foreign interests such as Chinalco to undertake direct investment in Australia and makes recommendations to the Government under its foreign investment policy, having regard to whether such proposals would be contrary to Australia's national interest. The FIRB conducts that process pursuant to the Foreign Acquisitions and Takeovers Act 1975.
In assessing the likely effect on competition from the proposed acquisition, the ACCC considered the potential for vertical integration between Rio Tinto's Australian iron ore operations and Chinese steel makers, based on the assumption that Chinalco and various steel makers are subsidiaries of the same parent entity and therefore may have common commercial interests. The ACCC examined whether such vertical integration could provide Chinalco with the ability to control or influence Rio Tinto to decrease global iron ore prices below competitive levels to the benefit of Chinese steel makers. This is consistent with the ACCC's approach in acquisitions involving partial shareholdings.
On the basis of information provided to the ACCC during this review and the ACCC's recent detailed investigation of the proposed acquisition of Rio Tinto by BHP Billiton, the ACCC concluded that Chinalco and Rio Tinto would be unlikely to have the ability to unilaterally decrease global iron ore prices below competitive levels. Given this conclusion, it was not necessary for the ACCC to reach a determinative view on the extent to which Chinalco could control and influence Rio Tinto.
The ACCC also considered the likely effect of the proposed acquisition on competition in markets within Australia for the supply of bauxite, copper, alumina. The ACCC noted that there was limited direct competitive overlap of the operations of Rio Tinto and Chinalco, and therefore that the proposed acquisition would be unlikely to result in a substantial lessening of competition in these markets.
Therefore, the ACCC concluded the proposed acquisition was unlikely to substantially lessen competition under section 50 of the Trade Practices Act 1974.
A Public Competition Assessment outlining the ACCC's reasons for its decision in more detail will be available on the ACCC's website.