Rio Tinto and BHP Billiton have abandoned plans for a $116bn (£73bn) joint venture merging the two companies' iron ore operations at Pilbara in Western Australia.
The deal between the two Anglo-Australian mining giants included sharing mines and transportation facilities and was expected to save the two companies $10bn annually. But it was "reluctantly" dropped yesterday after regulators across the world indicated their opposition to the proposal.
Rio and BHP are the world's second- and third-largest iron ore exporters, after Brazil's Vale and the collapse of what would have been Australia's biggest-ever merger came as little surprise after long-running speculation over watchdogs' concerns and intense lobbying from the steel industry that the deal could push up the price of one of its key ingredients.
Rio Tinto yesterday acknowledged that the two companies jointly decided to scrap the proposal after being advised that regulators in Europe, Australia, Japan, South Korea and Germany were unlikely to clear the plan. Some watchdogs would require "substantial remedies that would be unacceptable to both parties", such as divestments, some would prohibit the tie-up altogether, the company said.
Tom Albanese, the Rio Tinto chief executive, said he is disappointed the deal will 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. "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."
And there were similar sentiments from BHP Billiton's chief executive Marius Kloppers. "The large synergies from combining our Western Australian iron ore assets with Rio Tinto's have caused us to persevere in seeking to obtain regulatory approvals," Mr Kloppers said. "However, it has become clear that this transaction is 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."
A tie-up of the Pilbara operations of BHP Billiton and Rio Tinto was first mooted in June 2009 as Rio Tinto pulled out of merger talks with China's Chinalco. The proposed $19.5bn Chinalco deal was designed to help Rio manage vast debts from its earlier takeover of Canada's Alcan, but was abandoned after the commodities market strengthened in 2009.
And although Rio Tinto and BHP Billiton yesterday blamed regulatory issues for the collapse of the deal, insiders have suggested that further improvements in the economic climate – and in Rio's financial position – since the scheme was proposed left Rio management feeling the terms unduly favoured BHP.
Rio's shares fell 63p to end at 4,080p, while BHP shares fell 14p to 2,185.5p.