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BHP Billiton drops Rio Tinto takeover bid

The world’s biggest miner BHP Billiton said yesterday it was dropping its hostile takeover bid for rival Rio Tinto amid the current financial crisis.

BHP chief executive Marius Kloppers said recent falls in commodity prices and other issues had altered the “risk dimensions” of the multibillion dollar bid, which would have created a mining behemoth.

“BHP Billiton is very focused on balance-sheet strength,” Kloppers said.

“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,” he said.

The company said the all-scrip bid, under which the Melbourne-based BHP Billiton was offering 3.4 of its own shares for every Rio Tinto share, was no longer in the best interests of its shareholders.

“While we have not changed our view of the basic industrial logic of the combination, or of the longer term prospects for natural resource demand growth driven by emerging economies, we have concerns about the continued deterioration of near term 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,” chairman Don Argus said in a statement.

The proposed takeover had raised competition concerns, particularly in resource-hungry Asia where steelmakers feared the merger of the world’s largest and third largest miners would cede them too much control over commodity prices.

The takeover bid had already passed Australian and US competition regulators and was subject to a ruling from the EU’s antitrust regulator expected early next year.

Rio, the world’s second-largest iron ore producer, rejected BHP’s sweetened, all-share offer on Feb. 6, saying it undervalued the company and its growth prospects. BHP had offered 3.4 shares for every Rio share held.

The hostile bid had angered iron ore customers including Posco, South Korea’s biggest steelmaker, and JFE Steel Corp, ranked third worldwide.

The acquisition would have raised iron ore prices and should have been blocked by regulators, the steelmakers said.

In related news, Nippon Steel Corp, the world’s second-largest maker of the metal, would double planned production cuts because of waning demand from carmakers and builders.

The company plans to lower output by about 2.2 million tonnes in the six months to March 31 compared with the first-half, Nippon Steel president Shoji Muneoka said yesterday at a meeting of the Japan Iron & Steel Federation, which he chairs. The company on Oct. 29 estimated cuts of 1 million tonnes.

Nippon Steel and domestic rival JFE Steel are reducing output to meet falling demand from customers in Japan, which in the third quarter entered its first recession since 2001. JFE said last week it will deepen output cuts in the second half by threefold to 1.5 million tonnes.
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