BHP abandons its bid too far
It has taken a long time for BHP Billiton to admit it, but the world has changed since it formulated its hostile bid for rival mining company Rio Tinto. BHP shareholders should be pleased that reality has finally overtaken vanity and the takeover has been abandoned.
BHP mooted the bid early last year before the credit crunch squeezed. The terms were announced in November 2007. It is intolerable that a company should remain under siege for so long but the delay had ultimately worked to the advantage of those who want Rio to remain independent: after more than a year, BHP has conceded that this would be a bid too far.
The stockmarket has been telling the companies that for some time. When the takeover was announced it created a $140bn mining giant: by the time it was called off the combination was worth only $60bn and Rio was worth more than its bidder. And once the deal was abandoned, BHP’s shares leapt with relief while Rio’s sank.
Even after the terms were raised this year, this was a purely paper deal but BHP still seems to have been worried about taking on its rival’s debt. But as much as debt markets freezing, what has changed minds is the downturn in commodity prices as recession spreads, especially to dent China’s growth.
The mining industry is all about closing capacity now, not buying it.
The BHP deal had not been blocked by competition regulators but if they had forced the merged company to sell assets, there would be few buyers. Keeping the companies apart can only help commodity prices fall further, to the advantage of manufacturers across the world.
While BHP spent more than a year pursuing its prey, other mining companies such as Lonmin, Xstrata and Vale dreamt up bids and abandoned them. You have to woinder why BHP took so long to reach this conclusion.
But at least it called off the bid before it crippled itself. At the same time it made its first overtures to Rio, Royal Bank of Scotland was bidding for ABN Amro. Like BHP, RBS was not deterred by the intervening credit crunch. RBS won its bid for the Dutch bank however – and this year fell apart, forced to raise £32bn of new capital and to end up as a subsidiary of the UK government.
Now, having fought off BHP, Rio chairman Sir Paul Skinner is free to accept an offer to chair BP. Expect an announcement from the oil company within weeks.
