1. *

2. *
Australian multinational mining
and petroleum company
headquartered in Melbourne
World's largest mining company
measured by 2011 revenues
Revenue: USD 72.226 billion (2012)
On 8 November 2007, BHP Billiton
announced it was seeking to purchase
rival mining group Rio Tinto Group in
an all-share deal
A British-Australian multinational
metals and mining corporation with
headquarters in London
Placed itself among the world
leaders in the production of many
commodities
Revenue: USD 50.967 billion (2012)
Rio Tinto rejected the initial two bids
made by BHP Billiton on the grounds
of being “significantly undervalued”

3. *
*The joint operation (Australia's biggest merger at that time)
valued the business at $116bn (£72.9bn)
*It was expected to save the firms $10bn through sharing costs
* The shares of both companies rose after the announcement of
the deal, with Rio closing up 4.96% at £34.90, and BHP 4.72%
higher at £20.31½
*Combined, BHP and Rio would have had access to more than
350m tonnes of ore, making them the world's largest mining
group

5. *
*The estimated annual synergies (mining and distribution) operations
of the firms: USD 10 billion
*Combining BHP’s mining capacity with Rio’s distribution architecture
*Combining adjacent mines into single operations
*Reducing costs through shorter rail hauls and more efficient
allocations of port capacity
*Blending opportunities, which will maximize product recovery and
provide further operating efficiencies
*Optimizing future growth opportunities through the development of
consolidated, larger and more capital efficient expansion projects
*Combining the management, procurement and general overhead
activities into a single entity

6. *
*JV would be limited to the production
level and operate as a cost centre
*Marketing arms would remain separate
and request output from the
production JV independently

7. *
*Risk that the production JV has the ability and incentive to
restrict supply even if it acts independently from the marketing
arms
*Risk that BHPB and RT could influence production decisions
through non-executive Owners’ Council
*Risk of coordination between marketing arms due to increased
transparency

8. *
*China, the largest consumer: Concentration of the Pricing Power
*The Regulators: Antitrust Violations
*Reasons for their Opposition
* Instead of three miners controlling 75% of the market there will be a duopoly
controlling the market
* Withholding Strategy: Production may be cut substantially in order to limit the
decline in iron ore prices
* Thus, steel mills around the world would be exposed to potential price
increases, increasing their costs and reducing margins, and higher costs for
end customers (estimated 25% increase in costs for China)
* The JV would become the largest supplier of iron ore lumps and fines and raise
competition concerns
* Post JV, the competition between HP Billiton and Rio Tinto would reduce with
respect to volumes, price and quality (in spite of separate marketing functions)
* Post JV tacit collusion possible with the JV and smaller players
* Increased entry barriers for potential and existing suppliers
*End Result: The deal DID NOT go through!

9. *
*Some regulators said that they would re-consider the JV bid if
certain “remedies” or divestitures were made to alleviate
concerns
*None of the “remedies” were feasible for both firms
*Possible remedies included:-
*The participants should have continued to compete through
separate independent operations or through participation in other
collaborative efforts
*Reduction in the financial interests of the participating firms
(through the JV)
*Each participant’s ability to control should be limited
*Effective safeguards in place to prevent information sharing
*Reduction in the duration of the collaborative effort

10. *Association of Countries rather then companies - An
intergovernmental cartel?
*Controls policy matters regarding the oil extraction in member
countries
*Was formed to reduce dependence of the member countries
on the multinational companies controlling prices vis-à-vis
economies of the countries
*Membership increased from 5 to 14 in the last 53 years

11. *
*Formed to control government policies, in the favour of long
term interest of member sovereign countries and their
residents
*Mission was to stabilize price movements, not to control it
*Have seen a price dip due to excess supply or lower then expected
demand in last few year
*Controls only 40% of current oil production, despite having 70%
of total reserve
* Controls extraction and supply of oil from member countries rather
then directly controlling international oil prices

12. *
*Sovereign matter of countries, governments have the right to make decision
regarding natural resources
*Strong defence under the case laws from WTO/GATT
* Identification of petroleum as a exhaustible natural resource
* Article xx (g) defines that production can be restricted for exhaustible natural
resources in case purpose of such restriction is the conservation of resource
*Difficult to ascertain the OPEC’s identity as Cartel or as an Association
*Political considerations, keeping in mind that OPEC countries still have 70% of
total oil reserves