RIO Offer no longer in the best interest of shareholders

The bids off for RIO, according to the latest release by BHP. Citing worsening market conditions and divesting demands from the European regulators, the $US66 billion ($A104 billion) bid has been pulled sending RIO price down 37% in early London trade.

Marius Kloppers, BHP Billiton’s CEO, said:

“We have previously said that similar cultures and the overlap of key assets and
infrastructure make this a compelling combination. Recent global events and associated falls in commodity prices have, however, altered risk dimensions. BHP Billiton is very focused on balance sheet strength. Accordingly, the greater debt exposure of the combination plus the difficulty of divesting assets have increased the risks to shareholder value to an unacceptable level.“

In a statement release the same day, BHP has also approved a $US4.8 billion ($A7.35 billion) investment to expand its iron ore operations in the Pilbara by 32 per cent to 205 million tonnes per annum. With substantial uncertainty in the short term outlook of iron Ore, this is confidence boost to the long term view held by BHP.

Speculation has commenced on many forums relating to the direction BHP will take from here. Included are; Wait for RIO to continue to fall and initiate a new offer at a cheaper price, purchase other mid-tier producers or near term producers, Make a play for oil producer WPL and/or make a play for iron ore producer FMG.

More likely short term initiatives may include share buy back, or a new direction to sit on cash until the financial turmoil eases.