Monday, December 10, 2007

Blackstone the crows - US Private Equity is doing China SWF's dirty work

The background to this story is that Australian mining companies are the largest exporters to China of iron ore and other minerals which China desperately needs to keep its aspiring working classes and conspiring party classes in the driver's seat as the Numba One developing country.

The trouble for China is that the mining companies just refuse to happily hand over all that ore without a bit of haggle.

Now, typically, or stereotypically, the Chinese are old hands at haggling and maybe invented the game for all Guambat knows.

But now that they're back into the big leagues, they posture as though all that haggling stuff is beneath their immense collective self, and they are annoyed that BHP and Rio Tinto have made the Chinese buyers do a little song and dance routine, otherwise known as negotiating, to get the prices of the ore down to what China is willing to pay. They reckon that BHP/Rio constitute some kind of ungrateful, Western, conspiring duopoly of control over precious resources -- and who's to say they're wrong?

Anyway, they've made no secret of the fact that they'd really like to crash that BHP/Rio party some how, some way (see, "BHP/Rio Tinto: Chinese frustrated by inability to impact merger with US-EU style anti-trust legislation" in Guambat's last post).

And what black knight rides to their rescue? Well, good old American money, in the form of Blackstone (may the Schwarzman be with them), those privateers who've invited China's Sovereign Wealth Fund into bed them.

Now, all the spin will have it that China is being dragged into this reluctantly as a passive investor with no particular anvil to hammer, etc., etc. But, apart from the spin, the fact is that Blackstone is weighing in to defeat BHP's acquisition of Rio in a manner that will be positively, though merely coincidental don't you know, smashing, as it were, for China.

Reuters reports, By James Regan:

Banking sources familiar with the situation told Reuters
Blackstone and some other foreign banks and private equity firms
had been lobbying the Chinese government very hard to suggest
that Beijing should join the bid.

Last week Baosteel, China's biggest steel group, doused
speculation it was planning to spoil BHP takeover proposal for
Rio Tinto with an offer of its own, saying it lacks the financial
muscle [ID:nSHA24036].

The Telegraph said Blackstone believes Rio Tinto's key iron
ore operations alone are worth at least $110 billion.

Blackstone was ready to break Rio Tinto up completely, which
would include undoing the company's merger with aluminium
producer Alcan as well as selling off its iron ore business,
according to the report.

Blackstone already has strong links with the Chinese after
China Investment Corp, the $200 billion sovereign wealth fund,
paid $3 billion for a 10 percent stake ahead of Blackstone's

Rio accounts for 3.2 percent of the Australia's benchmark
S&P/ASX 200 <.AXJO> share index, and Chinese ownership of such a
company could ignite a political firestorm for Australia's new
prime minister, Kevin Rudd.

Australia has been happy to allow smaller mining companies to
fall into foreign hands, but has also been protective, blocking a
takeover of oil company Woodside Petroleum Ltd by
Anglo-Dutch energy group Shell in 2000, citing national

Times Online is reporting:
BHP Billiton claims to have found annual synergies worth $3.7 billion to be reaped by merging the two mining giants, the second and third-largest in the world. The savings would largely be a result of consolidating iron ore assets in the Pilbara region in northwestern Australia. Mr Albanese said last week that Rio had received several other approaches.

Separately, Sinosteel, of China, is bidding for Midwest Resources, another Australian miner, with an eye on its iron ore resources.

FT Alphaville can be excused from not having the sleep out of its eyes as it tried to focus on this early-London-morning developing story:
It’s like early 2007 all over again. Or at least it was according the Daily Telegraph on Monday. Which is not to say the story isn’t true.

Maybe Alphaville's instincts were good on this and maybe the source of this story is all wrong. The WSJ is reporting Blackstone and the China SWF have each denied any involvement.


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