BHP bid stops the slide: Economy round-up

More bad news from the US overnight threatened to send Australian markets down even further after yesterday’s 170.8 point fall – but then, like a bolt from the blue, came BHP Billiton’s bid for Rio Tinto.

BHP’s $272 billion bid – if completed, it would’ve been the second biggest takeover ever and created a $388 billion dollar company – was rejected as undervalued by Rio Tinto, leaving market traders slavering at the prospect of more bids to come.

More importantly, however, the bid has served as a reminder to the markets of just how much money there is to be made in selling commodities to China. So even though US Federal Reserve Chairman Ben Bernanke commented overnight that economic growth in the US is set to “slow noticeably”, and consumer and business spending is likely to contract as the housing crisis there gets even worse, this is not the story of the day.

Instead, the story is BHP, Rio, and China – and for Australian markets, that is a good news story.

All that has meant that by 12.15pm the S&P/ASX 200 is up 0.6% to 6563.3, while the Australian dollar is trading at US93.06, up on yesterday’s US92.31c close.

After the short-term excitement fizzles, however, thoughts will begin to turn to just how likely any takeover by BHP Billiton of Rio Tinto is to go ahead given the competition issues a merger between the two global mining giants would present.

The multinational nature of both companies would present some challenges for the competition regulators of the many national governments involved, not the least of which would be our own Australian Competition and Consumer Commission.

ACCC chairman Graeme Samuel says it is too early to make any specific comment on the BHP Billiton move, his language makes it clear he is up for the challenge.

“We’ll assess it at the appropriate time, as would a number of other antitrust authorities around the world, in the context of markets relevant to us. So we’ll take into account various international factors, but essentially we’ll look at the competition issues in the Australian context.

There would likely be a high degree of collaboration between the many national regulators that would be involved if the deal went ahead, Samuel says.

“Clearly we do work closely together, we communicate and share information with them as appropriate, and it is very much collaborative endeavour,” Samuel says.