Rio Tinto, BHP Billiton axe controversial iron ore merger
Mining giants Rio Tinto and BHP Billiton Monday abandoned a controversial merger of their Australian iron ore operations after it was rejected by foreign regulators over anti-competition concerns.
The Anglo-Australian companies, both among the world's top three miners, said they were disappointed at the collapse of the deal which was set to save an estimated 10 billion US dollars in shared costs.
"The large synergies from combining our West Australian iron ore assets with Rio Tinto's have caused us to persevere in seeking to obtain regulatory approvals," said BHP chief executive Marius Kloppers.
"However, it has become clear that this transaction is unlikely to obtain the necessary approvals to allow the deal to close and as a result both parties have reluctantly agreed to terminate the agreement."
Rio Tinto said the European Commission, Australia, Japan, South Korea and Germany had all refused to approve the deal, which was also fiercely opposed by industrialising China, the world's leading iron ore consumer.
"Some regulators have indicated they would require substantial remedies that would be unacceptable to both parties, including divestments, whereas others have indicated they would be likely to prohibit the transaction outright," a Rio statement said.
The joint venture in Australia's Pilbara region, a major source of iron ore for Asia's steel mills, was announced during the financial crisis in June 2009, as Rio struggled with debts after taking over Canada's aluminium group Alcan.
The merger was unveiled along with a 15 billion US dollar rights issue as Rio snubbed a 19.5 billion cash injection from its main shareholder, Chinalco.
However, rocketing iron ore prices and China's success in shrugging off the crisis have helped Rio and BHP to bumper profits, making the tie-up less attractive, according to analysts.
Rio Tinto edged to a new iron ore production record in the third quarter, while BHP's annual profits have more than doubled on the back of hot demand for commodities.
"The full value of the synergies on offer from a 50:50 joint venture was a prize well worth pursuing," said Rio Tinto chief executive Tom Albanese.
"Both companies have worked hard together over the last 16 months in a positive spirit to demonstrate its pro-competitive effects and I am disappointed that ultimately the regulators did not agree with us."
The deal's demise had been widely expected after Rio acknowledged problems with various regulators following media reports the agreement was "dead".
Last month, Rio and BHP asked Australia's competition commission to delay ruling on the deal, whose deadline was the end of this year, to give them more time to talk to other regulators.
Both companies said no break fee would be payable.
© 2010 AFP