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BHP Abandons Hostile Bid for Rio

By , Money Morning •

By Mike Caggeso
Associate Editor
Money Morning

With commodity prices falling and the global economic outlook uncertain, Melbourne-based mining titan BHP Billiton (BHP) pulled the plug on its hostile takeover of rival Rio Tinto PLC (RTP), saying the proposed deal is of no longer in the best interest of shareholders.

The bid was also partially kneecapped by antitrust concerns raised by the European Commission, which mandated BHP unload assets for approval.

 And Rio’s net debt of $39 billion was yet another concern for BHP.

“Recent global events and associated falls in commodity prices have… altered risk dimensions. BHP Billiton is very focused on balance sheet strength. Accordingly, the greater debt exposure of the combination plus the difficulty of divesting assets have increased the risks to shareholder value to an unacceptable level,” Marius Kloppers, BHP Billiton’s CEO, said in a statement.

BHP, the world’s largest mining company, announced the hostile bid last November. Its first offer allotted three BHP shares for each share of Rio, valuing the company at about $127 billion.

Rio Tinto Chief Executive Officer Tom Albanese rejected it, calling it “several ballparks away” from Rio’s value. BHP returned in February with a sweetened offer of 3.4 shares for each share of Rio. That offer, worth about $147 billion, was also rejected.

Since then, sinking stock markets and commodities prices have dragged down the companies’ stock value, making the value of BHP’s bid was about $66 billion Tuesday afternoon, Reuters reported. 

The dropped bid clipped as much as 40% from Rio’s New York-listed American Depository Receipts (ADR) Tuesday, while BHP’s New York-list ADRs moved up a healthy 13% by the end of trading. 

Competitors Cheer

Had Rio accepted BHP’s offer, it would have created a resource group capable of holding sway over a considerable portion of the world’s resources, including supplies of copper, aluminum, coal and iron ore.

BHP-Rio Tinto would control 14% of the world’s thermal coal and 13% of the worldwide copper supply. The company would also supply one-third of the world’s traded iron ore and 38% of the world’s seaborne iron ore trade.

Such a tight grip would have forced competitors to slash prices to compete.

“Steel makers around the world will be rejoicing today,” Ian Rogers, director of industry trade group U.K. Steel, told MarketWatch.

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