KEY POINTS:
The global financial crisis claimed its biggest Australian scalp last week when BHP Billiton wielded the axe on its US$66 billion ($125 billion) takeover of rival Rio Tinto.
In the end, it was a six-week period of volatility in financial and commodity markets that sank more than two
years of talks and posturing between the two companies.
"The events that we've seen over the last six weeks, perhaps since the Lehman's scenario started unfolding, and all of these subsequent events have clearly impacted our cashflows," BHP Billiton chief executive Marius Kloppers said.
That volatility combined with Rio Tinto's US$40 billion debt - accumulated after its takeover of Alcan - and the uncertainty surrounding asset sales in the current environment contributed to the decision.
The concept of combining the two companies in some form had been around since the 1990s and was attempted first by former BHP chief executive Brian Gilbertson in 2001 - a failed move that eventually led to his departure.
Five years later, in September 2006, BHP Billiton chairman Don Argus revived the idea at an informal meeting with his Rio Tinto counterpart Paul Skinner.
Subsequent correspondence between the two and a follow-up dinner between Argus and his outgoing chief executive Chip Goodyear with Skinner and incoming Rio chief executive Tom Albanese failed to raise support.
The Rio Tinto board eventually drew down the shutters on the proposal and instigated a takeover of Canadian aluminium producer Alcan in July 2007.
But BHP Billiton refused to let the opportunity pass and assembled a team of advisers about the same time as the Alcan buy, before Argus telephoned Skinner to outline the takeover proposal on November 1, 2007.
All this played out behind the scenes until BHP Billiton informed the market of its intentions on November 9, amid a torrent of speculation and the rumour of a deal.
The attitude of the Rio Tinto board was unanimous rejection, a position that did not waver until BHP Billiton sounded the death knell on the offer last Tuesday.
From the outset, newly crowned BHP Billiton chief executive Kloppers - who unveiled the deal just six weeks after taking up his post - argued the combination was "compelling" and would deliver more product to market more quickly.
The proposal soon drew the ire of steelmakers globally, concerned that a combined BHP Billiton and Rio Tinto would have too much control over pricing, particularly for iron ore.
BHP Billiton initially proposed offering three of its shares for every Rio Tinto share before the target approached the British Takeovers Panel to set a deadline for a formal offer under Britain's so-called "put-up or shut-up" law.
This gave BHP Billiton six weeks to launch a formal bid or withdraw from the takeover process.
On February 6, 2008, BHP Billiton announced a formal conditional bid, offering 3.4 of its own shares for every Rio Tinto share, and set about pursuing regulatory approval from various jurisdictions around the globe.
Both parties unveiled a series of growth options in a bid to talk up their future prospects and argue they were undervalued by the market and analysts, but it was not long before cracks started to appear on the Rio Tinto side.
At the height of the takeover, Rio Tinto shares surged over A$155 while BHP Billiton momentarily passed A$50 on the Australian stock exchange.
"A great decision has been made concerning Rio," a BHP Billiton shareholder remarked at the company's annual general meeting on Thursday, as analysts applauded the decision to adhere to fiscal discipline in the economic climate.
BHP Billiton walked away from the deal with a A$450 million bill, but a balance sheet that allows the company to fight another day.
- AAP
