By Melissa Pistilli – Exclusive to Iron Investing News

BHP Billiton is experiencing yet another setback in its attempt to acquire Rio Tinto Group in a hostile takeover bid.

On August 13, the European Commission asked BHP for more information in its efforts to determine whether or not to approve the transaction. The Commission has since put the merger review on hold because the “request for information … has not been fulfilled by the parties.”

The Commission’s review of the US$138.2 billion bid was originally scheduled to conclude by November 11 of this year. According to the Commission, “a new deadline will be set once the information is received.”

European Union regulators are seen by many as the largest roadblock to BHP’s success in acquiring Rio. The Commission’s investigation began in July amidst concerns that the deal would result in higher prices and cut options for European buyers of metals and minerals. “Concerns arise in particular as regards the markets for iron ore, coal, uranium and aluminum and mineral sands, because the proposed takeover could result in higher prices and reduced choice for these companies’ customers,” said the Commission.

The merger would combine the world’s second and third-largest iron miners to create a mining corporation in control of more than a third of the world’s seaborne trade in iron ore, overtaking Companhia Vale do Rio Doce as the world’s largest iron ore miner.

Michael Rawlinson, head of mining, resources and energy at Liberum Capital Ltd. believes the setback spells bad news for BHP. “The EU has obviously asked for information that can’t be provided quickly and the fact that they are failing to understand BHP’s arguments at this stage in the process does not bode well,” he said.

By putting the review on hold European Union regulators have signaled that they are concerned “on a number of levels” about BHP’s intentions, says John Meyer, head of resources at U.K. investment bank Fairfax I.S. Plc. “The EU may look for a strong legal argument to ban the deal and would prefer BHP to back away rather than formally censure the acquisition.”

BHP’s management, however, remains confident the Commission will grant approval for its proposed all-share takeover of Rio. Frank Fine, a Brussels antitrust lawyer, says the commission’s actions are not unusual. When regulators reviewing such a deal feel they need more time, they will put up a reason to declare the information incomplete, he said. An example is last year’s investigation of International Business Machines Corp.’s purchase of Telelogic AB, which cleared in March.

Rio Tinto has actively opposed the bid on grounds that BHP Billiton’s offer undervalues it. In February, BHP made its all-equity bid of 3.4 of BHP shares for every Rio Tinto share, then valued at US$147.4 billion. In April, Rio’s shares were trading at a premium to the bid price. As of Tuesday, Rio’s market value has slumped 13 per cent below BHP’s offer, which implies investors are weary about the deal actually going through.

A condition of BHP’s takeover bid involves garnering approval from regulators in Europe, Australia, the U.S. and South Africa before formal offer documents may be sent out to shareholders.

The Australian Competition and Consumer Commission expects to announce its ruling October 1. In a statement published August 22, the Australian Commission expressed concerns about the deal and the merged company’s potential monopoly over the iron ore market. Last week, South Africa’s regulators and BHP settled a dispute over the company’s refusal to submit requested documents. US regulators have already given conditional approval.

Once BHP is granted the necessary regulatory approvals for its bid the company intend to take its offer to Rio Tinto’s shareholders. The current delay will allow investors more time to review the next set of earnings reports due in February from both companies.

Another condition of BHP’s bid is that it must obtain all the regulatory approvals before the 81-day countdown for the bid begins running per British takeover law. Hence, the deal will be taken to Rio shareholders soon after final approval is announced. Expect to see a conclusion to the takeover attempt by March or April of next year.