When BHP Billiton Ltd. CEO Marius Kloppers launched his hostile, mostly stock bid for Rio Tinto plc a year ago, it was valued at $194 billion. When BHP withdrew it Tuesday, it was worth $66 billion. The difference was indicative of the falloff in commodities demand -- and mining stocks -- in the last year.
Over the past year Kloppers has argued that neither factor would undermine the viability of the deal. But apparently the drop was worse than he had anticipated. Bloomberg reported him
saying as much Tuesday during a conference call: "Commodity prices across our suite of products have dropped 50 percent in the last six weeks. It was just not the right time to be taking on the level of debt that exists on the Rio Tinto balance sheet."
The other major factor: expected demands from European Union regulators that BHP sell iron ore assets as a condition of the deal. Bad time to have do that. The company said it spent $450 million pursuing the deal, much of it for advice from bankers and lawyers, but it may still have underestimated regulatory barriers to the deal.
As recently as August we posted an item on the wave of mining deals and on what PriceWaterhouseCoopers was calling
"superconsolidation" in the sector. So is that all over now? Maybe not. While there's no doubt this is a setback for Kloppers, many observers expect him and other mining CEOs to be looking for other deals. -
Kenneth Klee
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