BHP and Rio seek way of avoiding break fees as joint venture stumbles

  • @AlistairDawber

Rio Tinto and BHP Billiton are investigating ways of abandoning their $116bn iron ore joint venture in Western Australia, which is almost certain to be blocked by regulators, without triggering a $250m break clause, according to reports over the weekend.

The two companies have all but abandoned hopes of completing the deal, which they argue would lead to savings of more than $10bn. The EU Competition Commissioner, Joaquin Almunia, said on Saturday that a statement of objections would be sent to both companies.

It is possible that Rio and BHP could formally bring a close to the deal as early as this week, but both are eager to learn the detailed objections of a number of anti-trust regimes that are still to rule on the deal. Last week, Germany's Central Cartel Office announced that it would block the deal, but the two firms had already become doubtful about the deal's survival.

Three weeks ago, the minutes of a Rio Tinto board meeting were leaked to an Australian newspaper, the Sydney Morning Herald, which quoted the mining company's chairman, Jan du Plessis, telling the board that he did not think BHP would object to Rio calling the deal off. "We should simply work on the basis that both parties worked well and in good faith to make this thing work and both parties agreed, simultaneously, it wasn't possible," he was reported as saying.

BHP has refused to comment on the reports, but sources close to Rio have confirmed that the deal is now "very unlikely" to go ahead as a result of regulatory restrictions that would force the companies to make a number of concessions.

Both companies will be keen to avoid contractual break fees. Rio was forced to pay as much as $200m in break costs when it rebuffed an investment bid from Chinalco last year. BHP paid out more than double that when it failed in its attempt to buy Rio in 2008.