Mining deals on the table - concentration fever
As we have4 shown over and over in this blog, the high demand for metals and the consequent rise in price has lead to unprecedented concentration in the mining sector. Now there are deals on the table among the four giants of the mining would turn the Big Four into the Big Two. True, these offers may not pan out, but the threat of so much of the world's strategic resources in the hands of so few companies gives one pause.
The first is the proposed merger between BHP Billiton (the world's largest miner) and Rio Tinto (the #3, which bought aluminum giant Alcan recently). These two Australia-based, but globally-present, giants are two of the top three iron ore companies, as well as major minors in variety of other metals. BHP Billiton first made a $147 billion offer for Rio Tinto. Then it sweetened the deal, up to $197 billion. That's one of the largest prices ever offered, and Rio Tinto (which just announced record income) says that it is too little. Will Billiton offer more? Will antitrust authorities allow this to take place - after all, the two already have the steel industry by the nuts as separate companies.
The second deal in the world is Brazil's CVRD's offer to buy Swiss miner Xstrata. CVRD (also called Vale) is the third member of the iron oligopoly, and actually the #1 iron ore producer. Xstrata has wide holding in coal, copper, zinc, and other metals. Vale's offer (a paltry $74 billion) has been rejected by Xstrata. But the first bid will almost certainly be followed by higher ones. Both companies are acquisition veterans - Vale bought Canada's Inco in 2006 and Xstrata bought Canada's Falconbridge the same year.)
IF the Vale deal goes through, and the BHP Billiton one does not, Vale will tehn become the #1 player in the mining sector.
Are mergers and acquisitions slowing down? Not for these cash-rich sectors that keep buying.
10:19:04 PM 
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