Australia has just had a lucky escape. The decision by Rio Tinto to reject a part purchase offer from giant Chinalco has averted a clash of interests that would not have served this nation well.
The first rule of business is clear. The party buying and the party selling should be separate interests !
The objectives are not compatible. The party selling is seeking the best possible price - and the party buying wants to get the goods at the lowest possible price !
Had this deal gone ahead it is certain that Chinalco would have sough seats on the Rio Tinto board, and there would be a mix of people from both companies making negotiating security impossible - and then there is the fact of life that China would be the elephant in the room when it came to pressure from the biggest buyer on the planet.
The arrangement between rivals BHP and Rio Tinto to form a $ 125 billion joint venture makes sense. The two companies will combine mines and share haulage and port facilities. This will lower costs - but the even bigger advantage is one of size. Combined - they are punching at near the same weight as their Chinese opponent !
Hopefully, this merger may send an important message to a lot of other Australian companies.
A new world order will emerge from this global recession - and size will matter. There is a lot to be gained by either merger or cooperation arrangements between companies in all forms of commerce to lower costs and streamline operations.
BHP and Rio Tinto have designed an admirable philosophy. They will embrace the huge benefits of joint production - but will maintain separate marketing arrangements.
The best of both worlds - and a format for others to follow !
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