Miner BHP Billiton is expected to request Japanese approval for its $170bn bid for rival Rio Tinto but while Japan can bark, it has little power to bite on the deal, despite being home to some grumpy big iron ore customers.
Outdated Japanese competition law will deter Japan's Fair Trade Commission from taking harsh action against BHP's unsolicited bid for Rio, lawyers say, despite strong opposition among Japanese steelmakers.
The steelmakers oppose a deal that would give one company control of a third of traded iron ore at a time of soaring prices but, with almost no Rio or BHP assets in Japan, the country has little power to enforce any regulatory block.
Japan's watchdog is instead seen working with its European Union counterpart in hopes of influencing that investigation.
"If the EU body demands BHP divestments of some key assets, Japan will do the same. If the EU moves into a second-stage investigation, Japan will follow," said Fumio Koma, a partner at law office Baker and McKenzie Tokyo.
"It would be much wiser if they could exert some influence on the EU on disposals of certain assets, to better reflect Japanese interests, rather than act on their own," he said.
Japan is home to two big steelmakers, Nippon Steel Corp and JFE Holdings Inc. Together they account for 6% of global steel output.
Japanese steelmakers have joined the chorus of global peers in opposing the deal, worried that a combined group would have undue pricing power over iron ore, contract prices of which nearly doubled this year.
Analysts say battle lines are being drawn in Western Australia's Pilbara region, the world's biggest source of high-grade ore, where BHP is likely to be forced to give up key assets. Japan imports 60% of its iron ore from Australia.
Rio has rebuffed BHP's offer of 3.4-shares-for-one as too cheap, saying it fails to take into account its growth prospects.
BHP said US anti-trust authorities have cleared its bid but sources familiar with the case say Europe is expected to announce an in-depth investigation on Friday.
STRIKINGLY ODD
Japan's fractured parliament failed this month to amend the anti-monopoly law, which would have required companies seeking a merger to submit their plan earlier, before buying shares in a target company.
Foreign companies do not have to seek Japanese regulatory clearance unless they have Japanese offices with big assets.
"Japanese law is strikingly odd among the nations feeling the impact of the possible merger of the world's two biggest miners," said Akinori Uesugi, senior consultant at law office Freshfields Bruckhaus Deringer.
"This is a typical case that there are affected parties here and the Japanese authorities have no means to control," said Uesugi, formerly the secretary-general of Japan's Fair Trade Commission.
BHP, which has filed for regulatory approval in Europe, the US, Australia and Canada for its planned takeover, has said it would file an application with Japanese regulators on a voluntary basis. It has made similar applications in China and other Asian countries.
Even if the Japanese competition body demanded the sale of assets or other measures to try to preserve competition in a merger deal, it has no effective means to penalise foreign companies if they ignore such an order.
"They'll lose face if they issued an order and BHP simply ignored that," said Koma of Baker and McKenzie.
The Japanese authorities say it's a matter of compliance.
"Even if they are not penalised, top-rated companies should ensure full compliance with the Japanese law," said an official at the commission, who talked on condition of anonymity. "Or that will seriously hurt their reputation on the global market."
Reuters
