Rio Tinto, BHP Billiton abandon $116-billion iron ore JV
18 October 2010
Anglo Australian mining giants Rio Tinto and BHP Billiton have abandoned their $116-billion Pilbara iron ore joint venture after regulators from several countries indicated that they would block the deal.
Rio and BHP, the world's second and third largest iron ore miners after Vale of Brazil, today announced that they have jointly decided to end plans for an iron ore production joint venture in the Pilbara in Western Australia , which would have given the mining giants control about a third of the world's seaborne iron ore trade.
''Both parties have recently been advised that the proposal would not be approved in its current form by the European Commission, Australian Competition and Consumer Commission, Japan Fair Trade Commission, Korea Fair Trade Commission or the German Federal Cartel Office,'' said Rio in a statement.
The miners decided to abandon the JV after regulators from some countries indicated that they would block the deal outright, while others wanted them to sell some of their assets, which was unacceptable to both the companies.
Expressing his disappointment, Tom Albanese, chief executive of Rio said, "The full value of the synergies on offer from a 50:50 joint venture was a prize well worth pursuing. 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.''
"It became clear that this transaction was unlikely to obtain the necessary approvals to allow the deal to close and, as a result, both parties have reluctantly agreed to terminate the agreement," said BHP chief executive Marius Kloppers.
The $275 million breakup fee payable will not be paid as both have agreed mutually to abandon the deal, the miners said in a statement.
Both companies finally decided to dump the deal after The German Federal Cartel Office said last week in a statement that that its intention is to prohibit the companies' proposed iron ore production joint venture, (See: German regulator set to torpedo Rio-BHP $116 bln iron ore JV) while the European Union regulator The European Commission indicated over the weekend that it would soon give a list of objections to the deal.
The Australian Competition and Consumer Commission had delayed the approval on three occasions, while the regulators from South Korea, Japan and China would certainly have torpedoed the JV.
BHP and Rio have long been bitter rivals, with Rio spending most of 2008 fighting off a hostile takeover bid from the bigger company.
Despite this rivalry, Rio, had in June 2009 joined hands with BHP for an iron ore 50:50 production joint venture encompassing all current and future Western Australian iron ore assets and liabilities from combining the companies' Pilbara region iron ore operations. (See: Rio-BHP team up for mining venture)
The proposed JV would bring together all of Rio's 200 million tonnes a year and BHP's 130 million tonnes a year iron ore resources in the Pilbara region worth an estimated $116 billion.
Under the JV, BHP, which has less iron ore output than Rio at the Pilabara, would have paid Rio $5 billion to equalise the stakes and both miners would be entitled to half of the production.
Both companies would have saved approximately $10-billion annually through combining their mines, rail, ports and workforces.
The miners had also said at that time that they would market 15 per cent of the production through the joint venture and the rest would be sold separately by both companies, which was later scrapped in October 2009 in order to pacify global steel makers and antitrust regulators.