Relieved of the need to hand over close to $US6 billion or more to Rio Tinto as an equalisation payment for the Western Australian iron ore joint venture, BHP Billion now has more freedom and firepower to attack and win control of PotashCorporation of Canada, if the Canadian government is willing to allow a bid to succeed, of course.
The iron ore JV has been dying for months and the news last week that the German and Japanese competition regulators had gone on the record opposing the deal sounded a very loud death knell for the project.
The news means the business media will also be deprived of a hoary chestnut (‘questions over BHP/ Rio JV’ type stories) and brokers and their analysts will no longer have to do ‘what if’ types of research notes.
Talk of the $120 billion JV is over, as the headlines and intros on yesterday’s stories said; thankfully we will be also deprived of an ‘Australian record merger’ record.
The news leaked in London (doesn’t it always for both companies, even though the assets are in Australia – it’s the London-based investment banks and brokers who gossip like old chooks) and was around early yesterday morning.
The end was formally revealed in statements, like this one from BHP released a couple of hours later, before stockmarket trading in Australia started.
The tie-up between the world’s second- and third-largest iron ore producers, announced 16 months ago, attracted negative attention from regulators across the globe, with steelmakers raising concerns about pricing and dominance of the sea borne iron ore industry.
The proposal was altered from a full merger of the iron ore businesses, including an independent marketing section that would have competed with BHP and Rio, but would not have been independent enough for regulators, so that was dropped.
But not even the modified arrangement was enough to win approval.
The two companies had twice asked Australia’s ACCC to put off announcing its view on the merger.
Both companies said they have been advised the proposal would not be approved in its current form by the European Commission, the Australian Competition and Consumer Commission, Japan and Korea’s Fair Trade Commissions and the German Federal Cartel Office.
The World Steel Association, which represents the major steel companies of the world, also strongly opposed the JV idea.
All that’s missing was China’s competition regulator (yes they have one).
BHP and Rio say some regulators wanted changes that the two miners were not prepared to accept.
The companies say the decision to abandon the deal is regrettable.
Rio Tinto chief executive Tom Albanese said he was disappointed the project would not be going ahead.
"The full value of the synergies on offer from a 50-50 joint venture was a prize well worth pursuing," he said in a statement.
"Both companies have worked hard together over the last 16 months in a positive spirit to demonstrate its pro-competitive effects and I am disappointed that ultimately the regulators did not agree with us."
The companies expected the JV to save them around $US10 billion in costs, especially ports and railway infrastructure.
However, European steel makers were anxious about rising iron ore prices and said the plan was anti-competitive.
They said the German vehicle-making industry would be particularly disadvantaged.
The two companies mutually agreed that no break fee is payable.
BHP shares eased 47c to $41.18, Rio shares fell 22c to $82.98 after a big run up last week as the deal looked increasingly shaky.
The market was off 0.8%, so the treatment of BHP and Rio was really a thumbs up from investors.
Now for the $US39 billion bid for Potash, which is being resisted by the company. Rival buyers seem to have fallen by the wayside.
But BHP has to spend billions on new a new Pilbara port, plus rail and other facilities, if it is to maintain its rapid pace of expansion in iron ore.
A bid for Fortescue, perhaps?
