BHP Billiton terminates Rio Tinto bid

AAP - BHP Billiton Ltd, the world's largest mining company, has terminated its multi-billion takeover proposal for rival Rio Tinto Ltd citing the deteriorating of global markets.

The company said the all-scrip takeover bid was no longer in the best interest of
BHP Billiton 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," chairman Don Argus said in a statement.
BHP Billiton was offering 3.4 of its own shares for every Rio Tinto share, with the
proposal already clearing regulatory hurdles in South Africa - although with some
conditions - Australia and the United States.
The European Commission, the European Union's antitrust regulator, was expected to
rule on the takeover proposal on, or prior to, January 15, 2009.
"Recent global events and associated falls in commodity prices have, however,
altered risk dimensions," BHP Billiton chief executive Marius Kloppers said in a
statement.
"The greater debt exposure of the combination plus the difficulty of divesting
assets have increased the risks to shareholder value to an unacceptable level."
Vocal opposition to the merger had emerged from steelmakers in Asia and Europe amid
concerns a combined entity could have enormous control over global iron ore and
other resource commodity prices.
BHP Billiton said it would book a $450 million cost incurred progressing the
takeover bid over the past eighteen months.
Meanwhile, BHP Billiton said it would report a $US2.1 billion ($A3.22 billion)
impairment charge on its Ravensthorpe and Yabulu nickel assets as a result of a
"significant deterioration" in the nickel market.
The company has also approved a $US4.8 billion ($A7.35 billion) investment to expand
its Pilbara iron ore operations in Western Australia by 50 million tonnes to 205
million tonnes per annum.
The Rapid Growth Project 5 (RGP5) expansion is expected to deliver first production
in the second half of the 2011 calendar year.
"While there is substantial uncertainty in the short term outlook, this investment
decision highlights BHP Billiton's confidence that the long term outlook remains
positive," BHP Billiton chief executive of ferrous and coal Marcus Randolph said in
a statement.
Analysts have applauded the move amid uncertain and volatile times in global
financial and commodity markets.
"I think it is a wise strategy," Fat Prophets analyst Gavin Wendt told AAP.
"It was always going to be a high risk bid with lots of potential stumbling blocks
and the biggest one, aside from having to get European Commission approval, is that
we're currently in one of the most uncertain financial times that has been witnessed
in 80 years or more."
DJ Carmichael analyst James Wilson said the combination of uncertain markets, the
likely EU requirement for BHP Billiton to divest iron ore and metallurgical coal
assets to satisfy the deal, and debt concerns had sunk the deal.
"I think it is great for BHP, I think it shows a sign of maturity that they're
willing to cut their losses and get out of there before it costs too much," Mr
Wilson told AAP.
"With uncertain times in global stock markets it is probably a wise thing to do."
Both analysts, however, agreed that BHP Billiton's withdrawal from bid did not rule
out the company revisiting the takeover when conditions improve in financial
markets.