Tuesday, April 13, 2010

Rio, BHP Pilbara Merger May Fail

Rio Shareholders May Demand Bigger Payment



Rio Tinto and BHP Billiton’s planned merger of their iron ore operations in Western Australia’s Pilbara region is likely to collapse unless Rio gets a bigger payment from its partner, a report by Royal Bank of Scotland Group Plc analyst Lyndon Fagan said on Monday.

BHP agreed last year to pay Rio $4.8 billion to equalise ownership of the venture. RBS calculates the payment is now worth $8 billion.

"Rio shareholders will not approve the deal, assuming it makes it through the European Union competition commission, unless a higher payment is negotiated from BHP," Mr Fagan said.

In the event that Rio asks BHP for a higher payment, BHP is likely to weigh up alternatives such as building an outer harbour at Port Headland in Western Australia, he added.

The two companies had planned to combine iron ore operations in Western Australia to save about $10 billion in costs.


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