Tuesday, November 25, 2008

BHP Billiton abandons Rio Tinto takeover plans

BHP Billiton has scrapped its plans to take over rival Rio Tinto, saying the fall in commodity prices and current financial environment no longer make the $66bn deal worthwhile.

In a statement to the Australian stock exchange today, BHPB said it understood the European Commission would require it to sell off iron ore and metallurgical assets before allowing the merger with Rio.

However, BHPB said given the current economic situation and “uncertainty regarding our ability to achieve fair divestment values in the required time frames”, any such sales of its assets would add to the cost and risk of buying Rio.

“Against this backdrop BHP Billiton will not offer any remedies to the European Commission antitrust authorities, and BHP Billiton expects that without remedies European Commission clearance will be withheld,” chief executive Marius Kloppers said in the statement. The EU was due to rule on the proposed merger in January 2009.

BHPB reiterated its belief that the merged company’s assets and infrastructure remained a “compelling proposition” but that the decision not to proceed was “first and foremost” about the interests of its shareholders. BHPB has spent $450m on fees on the transaction over the past 18 months, according to industry sources.

A senior China Iron & Steel Association (CISA) iron ore official alerted of the news by SBB described it as “good news for China’s steel industry.” "We have been against this merger all along," the official says.

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