Crikey

The news that mining duopolists Rio Tinto and BHP Billiton have done a deal to divvy up their combined iron ore assets in the Pilbara — burying the hatchet following BHP’s hostile takeover bid for Rio Tinto — has caught the commentariat on the hop this morning.

BHP will pay $US5.8 billion to equalise the two firms’ assets, with the duo effectively ganging up on the spurned Chinalco, after Rio earlier withdrew support for a proposed $US19.5 billion investment by the Chinese metals behemoth. The crack-up will do more than annoy the bureaucrats at the Foreign Investment Review Board who had been about to present Wayne Swan with copious notes on whether to ditch the deal.

The collapse of the biggest foreign investment in Australian corporate history also sent shockwaves through the market, with Rio’s share-price tumbling 7% in London overnight before its local shares were suspended at the open on the ASX.

Chinalco has reacted angrily with the Chinese conglomerate reportedly demanding a $195 million break-fee.

The commentariat were also quick to respond, with Robert Gottliebsen and Alan Kohler at Business Spectator battling through the wee hours to produce the following pars.

“It’s a pity Chinalco was not better advised when it negotiated its deal with Rio Tinto last year”, says Gottliebsen.

“A properly structured deal would have added a lot to Rio Tinto and Australia. And the whole affair is a lesson for all those negotiating with a wounded company as Rio Tinto then was – don’t take your advantage too far.”

Kohler emphasised the pressure on embattled Rio chief Tom Albanese:

Rio Tinto is now at the mercy of BHP Billiton. Having bungled its escape plan, and in the process disastrously compromised its relations with China as well as its own shareholders, Rio has nowhere to go but into the arms of its rival.

It is very difficult to see how chief executive Tom Albanese can continue in his job, even as a caretaker pending the negotiation of a deal with BHP.

Ian Verrender on the rival Business Day claimed the deal was dead from the beginning:

Rio Tinto’s decision to walk from its controversial deal with Chinalco shouldn’t have taken anyone by surprise.

For the past few weeks, chairman Jan du Plessis has toured the globe sounding out shareholders on the $US19 billion rescue plan. He needn’t have bothered. Ever since the Chinalco deal was announced early this year, it has elicited howls of protest from institutional and retail shareholders alike.

It was a deal that stank. It was a deal constructed in haste. And it was a deal designed to deliver the board and management from a disaster of their own making.

The Australian decided to republish Charlie Aitken’s morning report in its online edition. Again, Aitken wasn’t surprised:

The deal was struck absolutely at the peak of fear, bottom of markets and when Rio truly had no other refinancing options. However, the world has clearly changed for the better and as we wrote in these notes, well ahead of anyone else, the deal became way too in favour of the incoming party as Rio’s share price recovered far quicker than I suspect anyone involved believed.

Our view has always been that the federal government should quash the Chinalco proposal and force a marriage of BHP Billiton and Rio even at a specific asset level rather than a company level.

Andrew Hill in the Financial Times employed a bizarre wartime analogy to argue the deal’s collapse might turn out to be a net positive for shareholders:

Shareholders must be starting to feel the same about Rio Tinto’s directors as Winston Churchill felt about the Americans: they can always be counted on to do the right thing, after they have exhausted all other possibilities.

The miner has reached the desired destination – a big rights issue – by a circuitous route. There have been stop-offs in Beijing (to haggle with Chinalco and its state owners) and Canberra (to lobby Australia’s Foreign Investment Review Board). Along the way Rio has seen its chairman, Paul Skinner, disembark and its chairman-designate, Jim Leng, climb on board, only to step smartly off again. Tom Albanese, chief executive, can sit tight for now, though he still carries the taint of the Alcan deal that helped propel Mr Skinner to the exit.

But the last word should go to the FT’s venerable Lex column who leveled blame squarely at embattled Rio chief Tom Albanese:

But as time went on, both could see that this was a deal struck by a damaged management team at Rio’s darkest hour, with commodity prices languishing, credit markets largely unavailable and asset sales faltering.