INSTANT VIEW: BHP Billiton drops $66 billion

Tue Nov 25, 2008 8:08am EST

(Reuters) - BHP Billiton, the world's top miner, said it was dropping its proposed $66 billion hostile takeover of Rio Tinto, citing concerns about deteriorating global conditions and demands for asset sales from European regulators.

Following are some initial analyst and investor reaction to the news.

WILLIAM ADAMS, ANALYST, BASEMETALS.COM, LONDON

"With the move back in metals prices, it's not a surprise. It has no obvious impact on base metal prices as at least." "I am a little surprised that the Rio share price has dropped as much as it has. People were obviously positioned in Rio as a takeover target, but the situation seems to have changed so investors are unwinding."

ANDREW DRISCOLL, CHINA RESOURCES ANALYST, CLSA, HONG KONG:

"I don't think there is any direct impact on Chinese companies. The anti-trust issues raised earlier are not really a concern anymore with iron ore prices having dropped sharply.

"But this was a surprise."

MICHAEL KOMESAROFF, MANAGING DIRECTOR, URANDALINE

INVESTMENTS

"My view is that the market's moved against the situation, plus Rio is saddled with debt.

"(Rio) had this very ambitious plan after buying Alcan to sell off assets but the market moved against them. And with the subprime crisis, nobody can get any money to buy anything. Rio's got problems but they're not of BHP's making. They've got a phenomenal amount of debt.

"The market has changed dramatically in the last six months. What made sense six months ago doesn't make sense now. People talked about synergies in iron ore. Those synergies are still there, but nobody is prepared to pay for them.

"It shows remarkable discipline (on the part of BHP). They didn't fall in love with the deal. I think it's a good sign.

"I think the Chinese have got a problem in the sense that they, along with Alcoa, have 12 percent of Rio. They paid over the odds for it. They presumably would want to pick up some of the assets -- that may help Rio out of its misery."

JAMES WILSON, MINING ANALYST DJ CARMICHAEL & CO, PERTH

"Rio has $42 billion in debt and BHP only $6 billion. There's no way BHP wants to take on that kind of debt, particularly given the value of assets Rio is trying to sell to pay off its Alcan purchase has greatly diminished.

"This, combined with obstacles with the European Union left BHP little choice but to pull the offer. They've already spent $450 million on the offer and could have easily spent $1 billion before receiving a no."

MITSUSHIGE AKINO, CHIEF FUND MANAGER, ICHIYOSHI INVESTMENT

MANAGEMENT, TOKYO

"It's positive news for steelmakers because a merger of the two big miners would have meant a supply shortage of iron ore and higher prices. Now that raw material prices have plunged, BHP sees no merit in a costly merger.

"But a sharp fall in raw material prices amid gloomy global economic prospects is also a worrying factor for steelmakers as they would have trouble raising prices and sales volume in that environment."

KIM GYUN-JUNG, ANALYST, SAMSUNG SECURITIES, SEOUL

"This means the end of a long rally in iron ore prices and steelmakers will now have more bargaining power in annual term negotiations, because they are reducing iron ore purchases as well as steel production in the face of sharply falling demand.

"Iron ore producers such as Rio and BHP may have to give up more to win long-term contracts, while steelmakers with strong cash such as POSCO may now look into resources companies for acquisitions as current market valuation have made them quite cheap."

KIM HYUN-TAE, ANALYST, HYUNDAI SECURITIES, SEOUL

"News is positive for domestic steelmakers. When BHP Billiton's bid for Rio Tinto first became known, there were worries that it may cause inflexibility in iron ore pricing.

"However, how much the news will help share prices of steelmakers like POSCO still remains to be seen. We will have to watch U.S. steelmakers for reaction to it."

YANG KI-YEON, ANALYST, DAEWOO SECURITIES, SEOUL

"BHP's bid drop for Rio Tinto is positive in that it will not bring about more worries of an iron ore pricing cartel. But the news is neutral on share prices. Investors will not be jubilant over this given current market conditions."

TIM BARKER, RESOURCES ANALYST, BT FINANCIAL GROUP, SYDNEY

"There's certainly had been no indication that BHP would do this -- it's a surprise."

"This decision suggests that BHP's board have looked at what's going on in the market and realized the situation is not quite what it was before because of the economic deterioration."

Rio Tinto's share price was likely to come under pressure in London trading though the stock's recent price had not really reflected the value of BHP's offer, he said. "Expect a (share) buyback from BHP because there's a lot of cash being generated."

MICHAEL RAWLINSON, ANALYST, LIBERIUM CAPITAL, LONDON

"This is a big surprise. I see Rio shares falling 10-15 percent in London."