BHP Billiton Drops Rio Tinto Bid, Cheering Steelmakers

A rare piece of good news for steelmakers: BHP Billiton is walking away from its bid for Rio Tinto. Aluminum Corp. of China, Chinalco and other Chinese steelmakers, in particular, were among the most outspoken about fears that the combination of two of the largest natural resources companies would have too much control over prices over their feedstock, iron ore. As our sister site noted in Chinalco Gets Australia’s Limited Nod For Rio Tinto Stake, the Chinese steelmaker went as far as taking a stake in Rio Tinto to ensure it would have a place at the negotiating table.

BHP said the reason for dropping the bid was that asset sales that anti-trust regulators in Europe would likely require would have to be done at fire-sale prices and that financing would have been difficult to secure in the current global financial crisis. Further, servicing the high level of debt that would have been involved would have been risky at a time of tight credit and diminished cash flows following the collapse in world commodity prices.

One sign of the impact of the crisis on the all-share bid is that its value had fallen from $140 billion when it was made a year ago to $66 billion now.

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