BHP Billiton’s US$130 billion takeover bid for rival iron ore miner Rio Tinto dominated commodities news in December amid persistent rumors of a Chinese counter-offer.
First, the sovereign wealth fund, China Investment Corporation (CIC), was said to be rallying Chinese companies to put in an offer for the Anglo-Australian miner. This was quickly denied by both CIC and Rio Tinto officials. Then, the word was that Baosteel, China’s largest steelmaker, would lead a Chinese consortium to make a bid.
The 21st Century Business Herald, a Chinese newspaper, fed the speculation when it quoted Baosteel’s chairman, Xu Lejiang, saying that a deal was indeed in the works.
Another Chinese paper, Economic Observer, quoted a Baosteel official earlier saying that an offer would have to be sanctioned by Beijing – which hinted that a deal was possible.
The rumors were believable because China is the world’s largest consumer of iron ore. Chinese steelmakers, already squeezed by rising prices, would be at a disadvantage if BHP Billiton succeeded in controlling Rio Tinto, because this would leave only one other major miner, Companhia Vale do Rio Doce, to supply the global market.
But the rumors died down just as quickly as they arose. Xu denied that a bid was being planned, adding that Baosteel didn’t have enough money to buy Rio Tinto anyway.
Nevertheless, as the Wall Street Journal noted, the rumors themselves may have been enough to impact the deal. Rio Tinto, which is negotiating for a better offer from BHP Billiton, saw its shares in London jump as the rumors circulated, proving that all talk and no action is not necessarily a bad thing.