China, Rio and power
It’s also a big “who-runs-the-world?” moment.
This takeover contest may no longer be decided in a conventional way by the shareholders of the two companies and competition regulators in assorted jurisdictions.
The reason is that on Friday the state-owned Chinese mining and metals group, Chinalco, snapped up 8% of Rio through a daring stock-market raid. And it exercises control over 9% of Rio, through a partnership with Alcoa of the US.
This was more than £6bn of Chinese government money saying no to the BHP deal.
It was the most aggressive intervention in a Western commercial deal ever made by the Chinese.
And it demonstrates a remarkable new confidence – almost a swagger – on the part of the Chinese authorities in throwing their vast capital resources around.
They don’t like the BHP takeover idea for a simple reason.
The Chinese fear that a combined BHP/Rio could have excessive control over the price and supply of the raw materials, such as iron ore, that feed the great Chinese manufacturing machine.
According to a banker close to Chinese ministers, BHP has done too little to allay their concerns.
Now the Chinese have not bought enough shares in Rio to totally stymie a deal – though their stake would allow Chinalco and Alcoa to prevent Rio and BHP being integrated in a way that would maximise returns to BHP.
That said, Chinalco may buy more Rio stock.
So what will BHP announce when the Australian stock market opens tonight?
Well, it would look a little foolish if it walked away with its tail between its legs, having stalked Rio for months.
But, perhaps more importantly, its negotiating position with its important Chinese customers would be enfeebled if it scurried off in the face of the Chinese state pressure.
It’s a high-stakes choice for the company, and also for all Western commercial interests.
And don’t expect this to be the last or biggest investment by the Chinese in a British business.
The message that the Chinese took from Gordon Brown’s recent trip to China is that most UK companies are in the shop window – and so long as the Chinese pay the proper price for them, they can have them.