BHP drops Rio Tinto bid

The world’s largest miner, BHP Billiton (BHP-N, BLT-L), has withdrawn its hostile takeover bid for fellow mega-miner Rio Tinto (RTP-N, RIO-L).

BHP’s board says that the offer, launched in 2007, is no longer in the best interest of the company’s shareholders. Following the withdrawal, BHP shares climbed US$4.85 to US$38.27 apiece, while Rio Tinto shares slumped US$39.90 to US$106.09 in New York.

“While we have not changed our view of the basic industrial logic of the combination, or of the longer-term prospects for natural resource demand growth, we have concerns about the continued deterioration of near-term global economic conditions, the lack of any certainty as to the time it will take for conditions to improve and the risks that these issues imply for shareholder value,” said BHP chairman Don Argus in a statement.

CEO Marius Kloppers added that because of falling commodity prices, the debt exposure of the combined company, and the likely difficulty in finding potential buyers for assets, the merger would have “increased the risks to shareholder value to an unacceptable level.”

The mining giant cited the substantial cash flows required to service and repay the high levels of debt the combined company would have as a considerable disincentive during the prevailing difficult economic conditions.

The proposed takeover was still under review by the European Commission when it was abandoned. BHP had been anticipating the Commission would require it to divest of some iron ore and metallurgical coal assets, but the company believes that in the current markets, prices for such divested assets would be lower than anticipated.

BHP says that two businesses flagged for sale by Rio Tinto itself, Rio Tinto Alcan Packaging and Rio Tinto Alcan Engineered Products, may also fail to find buyers.

BHP has a net debt position of US$6.3 billion. It will write off US$450 million in connection with the abortive takeover.