Rio Tinto shares plunged as much as 16.3% on the ASX yesterday recording one of their single biggest falls since the October 1987 stock-market crash as the company denied it was in talks with BHP Billiton.
At the close, the shares were down $11.45, or 14.6%, at $66.95, while BHP shares shed almost 9.4%, or $2.55 to close at $24.70.
Rio had been queried by the ASX on Wednesday, which queried a surge in its price from $A66.29 on October 20 to $A79.64. The exchange made specific mention of “news wire reports speculating that the company will negotiate with BHP”.
Rio did not formally respond to the ASX until nearly four hours after share trading in Australia closed on Wednesday night when it pointed out there was no basis to the speculation.
But a far greater factor was the news wires report yesterday that European Commission lawyers had indicated problems with the bid.
Bloomberg reported yesterday:
"European Union regulators have told lawyers for BHP Billiton that its $US69 billion ($103 billion) hostile bid for Rio Tinto may break anti-trust rules, two people close to the case said.
"The European Commission will likely issue the companies a so-called statement of objections, said the people, who declined to be identified because the regulator’s proceedings aren’t public.
“The objections will outline the commission’s concerns that the combined company’s share of the iron ore market may lead to price increases, the people said.
"The decision may ratchet up the pressure on BHP to sell some assets and prove to regulators by January 15 that the world’s biggest mining merger won’t restrain competition.
“Rio has traded at a discount of as much as 29% to the value of BHP’s offer, indicating investors are betting the deal will fail."
"The commission’s statement of objections, which is a confidential document, will be sent as late as the first week of next month," Bloomberg reported.
Rio shares in London closed 7% lower on Wednesday at £23.89, a smaller fall than rivals such as BHP and others in the sector, on talk the European competition regulator was close to approving BHP’s takeover bid.
Rio shares have been all over the place in the past week: fuelled by unsubstantiated rumours that the bid was going to be approved, that the two companies were talking, and that the deal was dead.
On October 16, Rio’s shares fell 16% lower after it’s sparked a global sell-off in mining shares when it warned a slowdown in Chinese demand had caused it to revise its expansion plans.
That was in its third quarter production report.
It also said that the ”challenging financial markets” meant it would miss its target of selling $US10 billion of non-core businesses by the end of the year which were on the market to help cut the $US44 billion debt incurred in the Alcan takeover.
Rio shares have subsequently dropped 5% more, bounced 6% and then another 12% before rising 5% right at the end of trading on Wednesday. Then they fell more than 14% yesterday. Something’s happening.
