By Rebecca Keenan, Brett Foley and Alan Katz
Nov. 26 (Bloomberg) -- Marius Kloppers‘s Helpmekaar High School rugby team knocked seven opponents out of the match in the first seven minutes of the 1980 championship in Johannesburg.
“Marius accounted for most of them,” said Martin Kriegler, who played with Kloppers that day.
Kloppers, now chief executive officer of Melbourne-based BHP Billiton Ltd., took a hit yesterday when he was forced to abandon a $66 billion hostile bid for Rio Tinto Group Plc. Regulatory hurdles and falling commodity prices had made the deal too risky amid the worst financial crisis since the Great Depression.
Kloppers, 46, announced the bid on Nov. 8, 2007, just 39 days after he took over as CEO of the world’s biggest mining company. Had he been successful, he would have created a company that supplied half of Asia’s iron ore and ranked as the world’s biggest producer of steelmaking coal, copper and aluminum.
“He’s definitely been given a bit of a bloody nose from this,” said Daniel Sacks, head of resources at Investec Asset Management in Johannesburg, which holds BHP and Rio shares. “I think it does tarnish his reputation a bit because there has been a big writedown on the cost of the bid.”
BHP and London-based Rio Tinto, the second-largest iron ore exporter, have seen cash flows slump with commodity prices, making it harder to repay $42 billion in new debt BHP would have acquired in the takeover. The tipping point was copper’s 48 percent drop over the past two months combined with the European Union’s expected demand that the combined entity sell iron ore assets, Kloppers said on a conference call yesterday.
‘Not the Right Time’
“Commodity prices across our suite of products have dropped 50 percent in the last six weeks,” Kloppers said. “It was just not the right time to be taking on the level of debt that exists on the Rio Tinto balance sheet.”
When BHP announced the bid for Rio, metals prices were close to record highs after six years of gains, and the Standard & Poor’s 500 Index was near its peak. The S&P has since slumped 42 percent in Sydney trading, matching the decline in BHP shares. Rio has fallen even more, dropping 64 percent in London.
Kloppers’s retreat may turn out to be a blessing for BHP.
Barclays Plc, the U.K.’s second-biggest bank, made an unsuccessful bid for ABN Amro Holding NV last year. It went on to buy the North American unit of bankrupt rival Lehman Brothers Holdings Inc. in September. Royal Bank of Scotland Group Plc, which bought part of ABN for 14.3 billion euros ($18.6 billion), is being bailed out by the U.K. government after the takeover increased its vulnerability amid mounting credit losses.
‘Right Move’
“He’s made the right move under the current market conditions,” said Mark Pervan, senior commodity strategist at Australia & New Zealand Banking Group Ltd. “There will probably come to be a better time, and better structure to do this down the track.”
BHP rose 7.2 percent to 1,051 pence yesterday in London trading. Rio fell 37 percent to 1,550 pence, its biggest drop on record, on concern the failed bid will leave Rio struggling to repay $45 billion of debt used to buy Canadian aluminum producer Alcan Inc.
“Rio is clearly the loser out of this,” Investec’s Sacks said. “It didn’t look like that a year ago. But now they are heavily geared and are exposed to some of the commodities that have performed the worst, like aluminum.”
BHP yesterday said it spent $450 million of shareholder money and 18 months pursuing the takeover. Now Kloppers needs to concentrate on BHP’s day-to-day operations, said Phil Aiken, the former head of BHP’s petroleum business.
$2.1 Billion Charge
Among the issues facing the company are slower-than-expected production increases at BHP’s Ravensthorpe and Yabulu nickel mines in Australia, which contributed to a $2.1 billion charge announced yesterday.
“It’s probably fair to say he’s been a bit tarnished because he put a lot into this,” Aiken said. “I don’t think he should take the rap alone for this. They are still cashed up, and his priority should be getting back to running the nuts and bolts of the operations and executing the organic growth strategy.”
Kloppers, 6-feet tall with blue eyes and close-cropped dark hair, holds a Ph.D. in materials science from the Massachusetts Institute of Technology in Cambridge.
He has been known for attention to detail since his student days. At MIT in the late 1980s, when most students handed in thesis drafts and other papers filled with spelling and layout mistakes, Kloppers made sure his were sound in form as well as substance, said Don Sadoway, a professor of materials chemistry who taught Kloppers at MIT.
The CEO also holds a bachelor’s degree in chemical engineering from the University of Pretoria in South Africa and an MBA from Insead in Fontainebleau, France.
Coveting Rio
In 1993, Kloppers joined South Africa’s Gencor Ltd., which was later named Billiton Plc. BHP and Billiton merged in 2001. Previously he worked for Sasol Ltd., the world’s largest coals- to-fuels producer, in South Africa and as a management consultant with McKinsey & Co. in the Netherlands.
Buying Rio Tinto has been a dream at BHP since at least 1999. At that time, BHP’s discussions were conducted from a “position of extreme weakness,” Kloppers said in a March interview.
In 2003, then-CEO Brian Gilbertson, Kloppers’ mentor, quit after failing to gain the board’s backing for a bid for Rio Tinto, according the Australian Financial Review.
In April 2007, when Charles Goodyear was CEO, BHP made an informal offer to buy the smaller miner. Rio rebuffed the proposal, instead acquiring Alcan for $38.1 billion. With that purchase, Rio increased its long-term debt 19-fold and almost doubled its revenue.
Small Talk
All of that was in the past in October 2007, when Kloppers and Rio CEO Tom Albanese, 51, both attended a dinner at Claridge’s hotel in London to fete Goodyear’s retirement. They discussed the weather and riverboats, and reviewed the two companies’ joint ventures, according to March interviews with both men.
Less than two weeks later Kloppers made his hostile bid for Rio. Albanese fought the takeover, arguing that BHP’s offer undervalued the company.
“History will judge one to have been maybe over ambitious to do the bid,” said Hugh Young, managing director at Aberdeen Asset Management Ltd. in Singapore, who oversees $45.1 billion in assets, including shares in Rio Tinto and BHP. “The other should have taken the money and run.”
To contact the reporter responsible for this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net; Brett Foley in London at bfoley8@bloomberg.netAlan Katz in Paris at akatz5@bloomberg.net.
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