Rio Tinto plc (NYSE:RTP) terminated its $19.5 billion deal with Aluminum Corp. of China, opting for a 50-50 joint venture with BHP Billiton Ltd. (NYSE:BHP), its one-time suitor, and a $15.2 billion rights issue. The Chinalco deal ran into trouble when politicians, among others, worried about China having too much control over iron assets in Western Australia, which were part of a deal that included a $7.2 billion convertible bond component that Rio and Chinalco could not agree upon. Rio's shareholders, meanwhile, have been vocal about their opposition to the deal for several months.

The two measures will reduce Rio Tinto's debt to about $23.2 billion.

Last year, Rio fended off a hostile offer (then valued at more than $140 billion) from BHP. Chinalco's February 2008 purchase of a 9% stake in Rio for $14.1 billion, and the transaction's subsequent clearance by Australian Treasurer Wayne Swan, had helped Rio's cause. But as demand for minerals plunged as the world economy tanked, Rio must have had occasion to regret its coolness to its Australian cousin.

Now it's Chinalco that's out of the picture. BHP and Rio, which, combined, account for about a third of the world's iron ore production, signed a nonbinding agreement to establish a production joint venture covering the entirety of both companies' Western Australian iron ore assets. They say the value of production and development synergies will be in excess of $10 billion. The deal also involves BHP paying Rio $5.8 billion.

Formation of the joint venture, which carries a $275.5 million breakup fee, is expected to be completed around August 2010. Goldman, Sachs & Co. (NYSE:GS) and Gresham Partners acted as financial advisers to BHP. Morgan Stanley (NYSE:MS) advised Rio.

Along with all this, Rio Tinto announced a board appointment. Sam Walsh, CEO of Rio Tinto Iron Ore, was appointed to the boards of Rio Tinto plc and Rio Tinto Ltd., respectively, the London and Sydney-listed entities, as an executive director. The initial CEO of the production joint venture will be BHP Billiton Iron Ore president Ian Ashby.

Chinalco said it's "very disappointed" the deal with Rio won't proceed, arguing that it would have created "oustanding value."  That's something Rio shareholders beg to disagree on. - Baz Hiralal

Stay tuned. There's plenty of analysis on these deals to come on The Deal Pipeline (subscription required).

Rio Tinto, BHP announce iron ore JV
Rio Tinto announces $15.2 billion rights issue

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