BHP Billiton Withdraws Rio Tinto Bid

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M&A Activity

Steelmakers can finally smile. As commodity prices hit a major slump this fall, BHP Billiton shareholders started to side with the steelmakers weary of a duopoly, finally fearing that the proposed Rio Tinto takeover — a $70 billion hostile bid — might no longer  meet the company’s best interest. This Tuesday, mining company BHP Billiton dropped the bid after a nine-month attempt to merge with their rival. After announcing the dropped bid, BHP Billiton’s shares witnessed a sudden leap, rising 16 percent before the end of the day and rising as much as 20 percent immediately following the announcement. Rio Tinto, on the other hand, was dealt a harder blow, and the company’s shares dropped about 34 percent in London’s afternoon trading.

According to MarketWatch, “there were few left in the industry that expected the deal could survive the subsequent meltdown of the credit and commodity markets. The deal’s collapse is also seen as closing the book on an era of mega-mergers, with the value of all M&A activity down 24% at $3.36 trillion so far this year from an all-time high of $4.42 trillion a year ago.”

Steelmakers aren’t the only relieved group. The Wall Street Journal notes that bankers should also rejoice at the news. The newspaper explains, “Put bluntly, BHP’s withdrawal let banks that had underwritten a $55 billion loan to help finance the deal-Barclays, BNP Paribas, Citigroup, Goldman Sachs Group, HSBC Holdings, Banco Santander and UBS-off the hook. Though they surely could have used the fees that would have accompanied a done deal, providing the funding would have stretched their balance sheets even further at a time of great global uncertainty.”

On the same token, Chinese companies, particularly steelmakers, expect the dropped bid to boost their own business potential and strengthen the price bargaining position for iron-ore buyers.

–Amy Edwards

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