BHP Withdraws $66 Billion Stock Offer for Rio Tinto

By Rebecca Keenan

Nov. 25 (Bloomberg) -- BHP Billiton Ltd., the world’s largest mining company, scrapped its $66 billion offer for Rio Tinto Group, citing the turmoil in global markets.

BHP Chief Executive Officer Marius Kloppers said 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 today in a statement to the Australian stock exchange.

BHP rose 106 pence, or 11 percent, to 1,086 pence as of 8:23 a.m. in London trading. Rio fell 36 percent to 1,577 pence, valuing the company at 28.4 billion pounds ($43.1 billion).

“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 $5.7 billion at Investors Mutual Ltd. in Sydney. He holds BHP and Rio shares.

‘Best Interests’

“We note their comments,” Nick Cobban, a spokesman for Rio in London, said by phone. 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.

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 Corp., 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 $66 billion at the close of trade in London yesterday compared with a peak of $194 billion May 19.

Aluminum Corp. of China, the largest shareholder in Rio, said BHP Billiton Ltd.’s dropped takeover bid would benefit Chinese steelmakers.

“This is definitely good news,” Lu Youqing, vice president of the Beijing-based company, said today by phone. “We respect BHP’s decision.”

Chinalco, as the company is known, bought a 9 percent stake in Rio with Alcoa Inc. in February.

To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net