| The board of BHP Billiton has decided that it no longer believes that completion of the offers for Rio Tinto would be in the best interests of the company's shareholders. Players in the diamond industry had expected to see the diamond production of the Ekati, Diavik and Argyle mines all to be marketed together through one combined office, but such expectations have evaporated with the BHP Billiton move. "We have said that we would only seek to complete the transaction if it was in the best interests of BHP Billiton's shareholders. While we have not changed our view of the basic industrial logic of the combination, or of the longer term prospects for natural resource demand growth driven by emerging economies, we have concerns about the continued deterioration of near term global economic conditions, the lack of any certainty as to the time it will take for conditions to improve and the risks that these issues imply for shareholder value," explains Don Argus, Chairman of BHP Billiton's board, who says that the decision was first and foremost about BHP Billiton shareholder value and risks to that shareholder value. "We have previously said that similar cultures and the overlap of key assets and infrastructure make this a compelling combination. Recent global events and associated falls in commodity prices have, however, altered risk dimensions. BHP Billiton is very focused on balance sheet strength. Accordingly, the greater debt exposure of the combination plus the difficulty of divesting assets have increased the risks to shareholder value to an unacceptable level," adds Marius Kloppers, Chief Executive Officer of BHP Billiton. Regarding antitrust requirements, BHP Billiton has received clearance without remedies from the US Department of Justice and the Australian Competition and Consumer Commission. BHP Billiton understands that the European Commission will require divestments in iron ore and metallurgical coal to deal with its concerns. In the normal range of economic conditions BHP Billiton would have been prepared to offer remedies which we believe would have been both acceptable and manageable. However, given the current economic circumstances and uncertainty regarding the company's ability to achieve fair divestment values in the required time frames, these remedies would contribute to the cost and risk of the transaction. Against this background BHP Billiton will not offer any remedies to the European Commission antitrust authorities, and BHP Billiton expects that without remedies European Commission clearance will be withheld. The European Commission's formal review process will likely continue until early to mid January 2009. Other key elements that have substantially increased the risks to shareholder value for the combined company to unacceptable levels include: -
The prospective level of debt of the combined company, compared to the possible cashflows required to service and repay that debt against the background of difficult economic conditions over the near term; and -
Concerns regarding the ability to divest other non-core assets already flagged for divestment by Rio Tinto including Rio Tinto Alcan Packaging and Rio Tinto Alcan Engineered Products which impacts the ability to reduce debt and requires the continued management of these complex businesses. If, despite BHP Billiton offering no remedies, European Commission clearance were to occur, BHP Billiton would be required to seek the approval of its shareholders in Extraordinary General Meetings. Were this to happen, BHP Billiton's directors intend to recommend that its shareholders vote against approving the transaction. BHP Billiton intends to write off the costs of approximately US$450 million incurred in progressing this matter over an eighteen month period in the December 2008 half year results. Despite the near term challenges, BHP Billiton is in a very strong position with net debt of only US$6.3 billion at 31 October, 2008 and a portfolio of assets that will continue to deliver sound cash-flows. "BHP Billiton will continue to invest to be in a position to meet long term customer demand. Our announcement today that the Board has approved RGP5, the next major growth project for our iron ore business, demonstrates this. Our strong balance sheet is a competitive advantage in times like these. Together with our portfolio of long-life, low cost, expandable, Tier 1 assets, we believe this places us in a better position than any other major mining company to deal with these uncertain times. BHP Billiton's priorities for cash flows remain to invest in its core businesses, manage its balance sheet to a solid single A credit rating, maintain its progressive dividend policy and return any surplus cash to shareholders," concludes Kloppers. |