Once again the credulous financial media in Britain is being used to float rumours about BHP Billiton and Rio that bear little resemblance to what has been going on in the real world.
Last week it was the Chinese media being used, with an honourable assist from London.
Yesterday it was London in a starring solo role.
The London Telegraph newspaper reported that the US private equity group, Blackstone "is mulling an audacious break up bid for Rio" with perhaps China's sovereign investment fund.
Now Santa Claus and the Easter Bunny are still a little in the future, and perhaps this 'audacious' bid might happen, but isn't it a bit passing strange that this story breaks hours after two deals in Australian fell over worth more than $11 billion, one of which involved Blackstone.
Singapore controlled power group, SP AusNet said it had abandoned plans to but electricity assets from its parent company because the $8.3 billion needed couldn't be raised.
And a three party consortium including Blackstone which had indicated interest in bidding $3.1 billion for agricultural chemical group, Nufarm, let a deadline of last night slip and didn't commit.
All that suggests credit markets are all but closed and money is very tight.
Nufarm said the consortium included Blackstone and US group Fox Paine, plus the main partner, China National Chemical Corporation. The mooted offer was for $17.25 cash for each Nufarm share plus a payment of a pre-acquisition dividend of up to 30c per share.
And the Bank of International Settlements, the central banks' central bank, has warned that the lending crunch would continue past the first quarter of 2008.
That means raising the billions for the bid for Blackstone and its mooted Chinese partner, or selling the assets, would be extremely rough for at least the next six months or longer because of the credit drought.
The BIS warned that forward interest spreads in the interbank markets of the major economies were not only signalling a tough time at the end of this month, but had been sending messages that the lending drought would go on.
"Such forward spreads shifted upwards for horizons extending well into 2008, and the shape of the term structure beyond the turn of the year was consistent with investors anticipating tensions to remain high in money markets for an extended period of time."
That's central bankerese for the credit crunch, which has slashed lending and fund raising across the globe, and boosted the buying of credit insurance and hedging in foreign exchange markets by major players protecting themselves, which will go on well into the New Year.
It is the first reputable body to make such a forecast and it's a group better placed to know than any other financial institution in the world.
It's not saying deals won't happen: all the BIS is saying is it will be very tough to raise money.
The Telegraph reported that Blackstone had appointed lawyers and is in talks with banks and public relations companies for the potential offer, which would compete with a $US137 billion takeover proposal from BHP Billiton
New York-based Blackstone is manager of the world's largest leveraged buyout fund and is 9.4% owned by the Chinese sovereign fund, China Investment Corp, which is losing money on the deal because of the fall in the Blackstone share price.
China Investment Corp has already denied this month that it may bid for Rio, as have at least three Chinese steel companies, including Baosteel last Thursday.
Rio shares jumped by up to $2.40 to $147.88 yesterday and closed at $146.70, up $1.22. BHP rose 9c to $43.59 valuing its offer for Rio's Australian shares at around $131 a share, well under the implied 'three ballparks away' figure from Rio boss, Tom Albanese.
It was only last month that Blackstone co-founder Stephen Schwarzman said rising borrowing costs were crimping the pace of large leveraged buyouts. Now Blackstone is out looking for money, and looking to raise money for the bail out fund for the Wall Street banks with dodgy debt in things called SIVs, or structured investment vehicles.
The cheap debt and easy money of the past four years or so has gone; risk is priced back into deals, and in this market, the biggest the deal, the bigger the risk.
The same applies to BHP's claims to have $US70 billion in cash sorted to replace the $US38 billion in Alcan debt in Rio and to make a $US30 billion capital return to shareholders after the bid.
BHP says it has commitments from a group of banks to raise the money, including Citigroup. They can't sell a dollar of that until the bid is firm, nor can they sell any of it in this sort of market. It would be the largest raising of cash in the markets ever.
The Telegraph claimed Blackstone may seek to reverse Rio $US38.1 billion purchase of Alcan in October and sell its iron-ore business, which it values at $US110 billion.
That's pie in the sky stuff from the British media; Alcan is a done deal and reversing it would mean selling it back to Alcan shareholders. It is unlikely they would want to pay the same amount for it. Nor is clear that the French, Swiss, Australian and Canadian and Quebec Governments, all of which had to give their approvals (and the EC) would be interested in reversing a deal like this.
The sale of the iron ore business would only make sense if the likes of Xstrata or Anglo American could buy it. BHP might be interested, but the Chinese would object.
Besides Xstrata is said to be under the eye of its bigger rival, CVRD of Brazil, the world's biggest iron ore group and nickel miner.
That would limit the price Blackstone could get for it. CVRD couldn't bid, Xstrata couldn't and Anglo has underperforming African assets which limit is strength. Its gold
