BHP Billiton scraps plans to acquire Rio

BHP Billiton has scrapped its plans to acquire Rio Tinto in a $66 billion hostile takeover bid.

The group’s chairman, Don Argus, said that while the board had not changed its view of the benefits of such a merger, concerns about the deteriorating global economy had influenced the decision.

In explaining the action further, BHP’s chief executive, Marius Kloppers, referred to the problems of the debt exposure of the combined companies in today’s financial climate and the difficulty of divesting assets. He also commented on falling commodity prices.

While the proposed acquisition has the approval of US and Australian authorities, the European Commission has been expected to order certain divestments.

A combined BHP / Rio would control around 34% of the traded iron ore market and this has led to fears that prices would rise.

The Commission is due to set out its demands in January of next year but BHP is not expected to offer any remedies on matters of competition, meaning permission for the merger will be denied.

BHP Billiton will have to write off costs of approximately $450 million incurred during the 18 months in which it has been chasing its ambitions over Rio.