Hubris and nemesis

25 November 2008 By John Foley Follow @johnsfoley

Rio s board looks remiss for not accepting an allshare offer when it had the chance. BHP s board looks foolish for its hubris. But given the problems a merger would have created among customers and lenders, these failings may be a blessing in disguise.

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BHP Billiton said its $66bn allstock offer for rival AngloAustralian miner Rio Tinto was no longer in the best interest of its own shareholders, citing falls in commodity prices and the heavy debt load of a potential combination.

Marius Kloppers, BHP's chief executive, said the decision also hinged on the diffculty of making divestments in iron ore and coking coal, which would be necessary for European Union antitrust approval, at a reasonable price.

BHP revealed its intention to bid for Rio in November 2007. It took out a $55bn loan facility from seven banks including Citi, Goldman Sachs, HSBC, Santander and Barclays, partly to refinance Rio's $38bn of net debt.

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