Save us from the cowboys in the Chinese business community.
Ever since BHP tried to snuggle up to Rio Tinto and seduce it into its balance sheet early last month, there's been a rising tide of rumours, direct reports and if we are to believe the 'clarifications', a lot of outright lies emerging from China and especially its steel industry.
The steel industry and the government are uneasy about the prospect of BHP and Rio merging; as are steel groups in Europe and Japan.
But no country has allowed a blizzard of 'informed sources', directly quoted comments and then denials, to emerge in a way that undermines whatever credibility China has on the issue.
That's not to say that the teams advising BHP and Rio are pure and chaste on this issue: there's story floated a week ago and then revved up in London a couple of days ago which suggested Rio had softened its stance and was now more willing to talk to BHP. Rio has denied that.
Those stories are designed to try and stampede Rio into talking officially to BHP, which would add pressure on the target to do a deal, especially when BHP brings out a real bid, one that has more credibility than the three BHP for every one Rio floated with the first announcement.
Official talks would trigger the takeover process in London which takes six months, which would add further pressure on Rio to do a deal, or reject the bid outright.
BHP shares rose yesterday, as did Rio but it could be argued that the drivers were more the latest false or planted story from China, than any fundamental reassessment of the worth of any deal by investors.
Rio shares closed up 92c at $144.74, but actually rose $1.98 to a peak on the day of $145.80. BHP ended up 68c at $43.38, but peaked at $43.90 when the China story speculation was running hot, a rise of $1.20.
Both shares eased once the latest denial appeared, but the hares had been sent running.
It was the fourth story from China about possible corporate activity or involvement in the BHP-Rio situation: all have proved to be negative, all have destabilised the share prices.
At yesterday's closing prices, BHP's shares value Rio at $130.14, almost 33% down on the Rio price, and with no premium for control.
This week we have seen two, possibly three stories emerge from China.
Tuesday morning newsagencies reported that China's Baosteel group had plans for a bid for Rio; they then reported a denial mid-afternoon yesterday that there were no plans.
Official Chinese media Baosteel chairman Xu Lejiang as saying that there was no plan to bid for Rio Tinto Group and Baosteel does not have the financial strength for such a bid,
The official China Securities Journal carried a similar denial by Xu.
On Tuesday, a smaller Chinese newspaper, the 21st Century Business Herald, had quoted Xu as saying Baosteel, whose listed arm is Baoshan Iron & Steel, was considering a bid of at least $US200 billion for Rio Tinto and that there was a large chance of a takeover effort going ahead.
Baosteel's subsidiary, which accounts for over 75% of the group's steel output, has a market value of only $US39 billion, much smaller than BHP Billiton or Rio's market caps. It is a tiddler.
Reuters reported earlier this week that a senior executive at the Shougang group, another major Chinese steel maker, said it would not be involved in any Chinese bid for Rio Tinto and was not aware of such a bid.
These off the cuff comments are making China look a joke and undermining the hard won credibility of recent years that its businesses have built.
Baosteel is part of the Government, therefore when an executive speaks on such an important issue as this, there's the natural assumption in Australia and elsewhere that this is really a Government decision.
This is not serious behavior from mature businesses.
It's the stiff of cowboys and reminds you of the 1980s in Australia and certain now dead or discredited entrepreneurs who spoke first and then bid later, if at all.
Finally because of the influence of the Chinese Government, any move by any Chinese company of size or significance in banking or resources or energy to get involved in BHP and or Rio would be tantamount to signalling that the Chinese Administration is a player.
Does anyone seriously think that the various bodies charged with vetting foreign investment in this country, as well as the Rudd Government, wouldn't want to consider the enormous strategic factors involved in such a move?
Britain's struggling Labour Government says it's open for business to wealth funds, like those established by Middle East countries and China. That's the British Government speaking on behalf of the financial sector in the City of London, and hopeful that Chinese investors will generate business for the struggling banks in the City.
This is not simply an issue for regulators, nor is it about the danger of creating false markets in mining stocks.
BHP Billiton's offer for Rio has changed the rules for every mining deal: every company, every possible combination is being turned over and analysed, even with the credit crunch. Investment bankers have plenty of time on their hands at the moment, those with low subprime exposure, that is.
If Baosteel or another big Chinese investor was to buy a shareholding in Tio to keep it independent, would that be enough?
Well, there would be the ultimate conflict of interest between buyer and seller and whose shareholders should benefit.
Rio's non-Chinese shareholders would be second behind the wishes of the Chinese Government-controlled new big shareholder in Rio.
That's a recipe for disaster and the downside to all these sovereign wealth funds shooting up around the world; even our $60 billion Future Fund.
