TW: The deals of the sort outlined in this piece are a metaphor for what is and will be occurring across the world now and for the next several years. While the world economy teeters those companies and nations with cash will have a tremendous opportunity to buy up assets at fire sale prices.
Balancing national interests, free-market principles and economic realities will present governments with very challenging dilemmas. In this crisis though unlike many past occasions the acquirors will be some former acquirees. How will this dynamic alter international power relationships and perceptions?
From Philip Bowring:
"The offer by China to inject $19 billion into the cash-strapped Anglo-Australian mining giant Rio Tinto could prove more significant than China's 2005 bid for Unocal, which was thwarted by U.S. opposition.
The clash between the power of money and perceived national interests is growing more intense as cash-rich buyers try to take advantage of cash-strapped sellers.
In turn, this will test Australia's perception of itself, as well as a relationship with its largest trading partner that grew warm and cozy in the days when China's growth was unquestioned and the minerals boom in full swing.
...Chinalco is offering to buy at well above the fire-sale prices that Rio might otherwise have faced. Its stakes will be far from control and could help secure long-term Chinese buyers for its ores.
The fact that Rio - which must repay a $9 billion loan this year - is desperate says much about mismanagement by hubristic Western executives, who instead of using the recent good times to hoard cash accumulated debt in efforts to outbid each other.
...Desperate to raise money without having to go to its own shareholders or lose face by selling assets to BHP, Rio has opted for China's ready cash.
...Second, it is not hard for Australians to see Chinalco as the thin end of a wedge aimed at influencing the supply and pricing of Australian ores.
...Chinalco is a major client for Australian bauxite. Other Chinese metals producers and users are clients of Rio's copper and iron ore mines. Chinalco itself has ambitions to diversify into other minerals. China has also been making it clear that it wants to break the combined influence of Rio and BHP on iron ore prices and was openly critical of the BHP bid for Rio. Australia and Brazil dominate world exports of iron ore and China is the main buyer.
Some prominent business commentators in Australia are claiming that this bid is clearly contrary to Australian national interests.
...With its external deficit, Australia needs capital, and several of its cash-short mining companies are looking to China for salvation. But for China, the more mine projects that can be kept alive now, the cheaper it will be able to buy ore when economies revive.
...Resource nationalism waxes and wanes in Australia. Today, Australia, like Rio, is caught between a heightened sense of its own vulnerability to China, and its need for cash.
Even if this offer goes through, it will leave a mark on Australian perceptions and likely lead to tighter controls in future. And it will make other commodity exporters think twice about relationships with their major customers."
http://www.iht.com/articles/2009/02/16/opinion/edbowring.php
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