Rio Tinto: Takeover Fears and Price Negotiations with China

Case Solution

Ivan Png, Zhigang Tao, Carola Ramon-Berjano
University of Hong Kong ()

In the trading year 2005/2006, Brazilian iron ore giant Vale negotiated a 71% price increase with its Chinese clients. For the same period, the Australian BHP charged a premium that reflects the freight cost differences between shipping iron ore to China from Australia versus Brazil. This lawsuit was subsequently suspended due to strong opposition from Chinese mills. In the 2007/2008 trading year, the other Australian iron ore giant Rio Tinto demanded and received a premium following the 6571% price increases negotiated by Vale, bringing total prices to 200% year-on-year. This case looks at the motivations behind these price negotiations in light of BHP’s hostile takeover of Rio Tinto, which not only results in a combined market share of nearly 40% in traded iron ore production. , but also a monopoly on supply. of Australian iron ore. This case can be used in business, negotiation, and strategy classes as it teaches students different aspects of the negotiation process. Topics such as hostile takeovers, pricing, market shares, and business relationships are discussed.

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