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BHP Billiton, the world's largest mining company, has scrapped its US$66 billion offer ($123 billion) for Rio Tinto Group, blaming the global economic downturn and plunging commodity prices.
BHP chief executive Marius Kloppers said last night that buying Rio would have increased his company's debt and it would
have been difficult to sell assets.
The worst financial crisis since the Great Depression has stalled credit markets and cut demand for raw materials, slashing prices. The European Commission had expressed concern that a combination of the companies might have limited competition in the iron ore market.
"We have concerns about the continued deterioration of the near-term global economic conditions, the lack of any certainty as to the time it will take for conditions to improve and the risks that these issues imply for shareholder value," Don Argus, chairman of Melbourne-based BHP, said yesterday in a statement to the Australian stock exchange.
BHP Billiton launched a hostile, all-stock bid in February. It offered 3.4 BHP shares for every share of Rio Tinto, which rejected the bid as undervaluing its company and its growth prospects.
The bid was initially valued at about US$147 billion, but stock markets globally have plummeted since then.
"BHP needs to focus on existing operations, and I think going into an economic downturn they need to batten down the hatches and generate as much cash flow as they can," said Jason Teh, who helps manage the equivalent of US$5.7 billion at Investors Mutual in Sydney. He holds BHP and Rio shares.
"We note their comments," said Nick Cobban, a spokesman for Rio in London.
Rio is the world's second-largest iron ore producer. A combination of the two Australian-based miners would have been bigger than Companhia Vale do Rio Doce, the world's largest iron ore miner.
Rio's spokeswoman Amanda Buckley wasn't immediately available to comment when contacted at her Melbourne office.
"The BHP Billiton board today decided it no longer believes that completion of the offer for Rio Tinto would be in the best interests of BHP Billiton shareholders," Argus said.
The hostile bid had angered iron ore customers, including Posco, Korea's biggest steelmaker, and JFE Steel, ranked third worldwide.
The acquisition would have raised iron ore prices and should have been blocked by regulators, the steelmakers said.
The value of BHP's offer had slumped following the drop in commodity prices this year.
It was worth US$66 billion at the close of trade in London yesterday compared with a peak of US$194 billion May 19.
Aluminum Corp of China, the largest shareholder in Rio, said BHP Billiton's dropped takeover bid would benefit Chinese steelmakers.
"This is definitely good news," Lu Youqing, vice-president of the Beijing-based company, said yesterday by phone. "We respect BHP's decision."
Chinalco, as the company is known, bought a 9 per cent stake in Rio with Alcoa in February.
Analysts said BHP Billiton might return for another tilt at Rio Tinto in the future.
THE PLAYERS
* BHP Billiton is the world's biggest mining firm. It is listed on stock exchanges in Australia and London.
* Rio Tinto is the world's second biggest iron ore producer. It is listed on stock exchanges in Australia, London and New York.
THE BID
* BHP Billiton announced it wanted to buy Rio Tinto in November last year.
* It launched a hostile, all-stock bid in February.
* It offered 3.4 BHP shares for every share of Rio Tinto, valuing it at US$147 billion at the time.
* Rio Tinto rejected it as undervaluing the company.
- BLOOMBERG, AP