26 November 2008
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Johannesburg — WAS BHP Billiton's bid for Rio Tinto doomed from the start, or was it sunk by the market collapse?
It seems a moot argument, as it is dead. But it remains pertinent because if it was doomed then BHP CE Marius Kloppers and chairman Don Argus might have to take the rap. If it was caused by the market , then they might be off the hook.
The argument that the deal was set on shaky foundations gains impetus from Kloppers' own view. He consistently argued this was a "deal for all seasons". Clearly, not. Yet, the current season is so bizarre that with the best will in the world, it was impossible to foresee .
A crucial aspect of current markets is the high cost of insuring debt against default. Since Rio's debt is so much higher, the benefits of the merger are lower than they would be if this aspect was not part of the equation.
But Kloppers is on less firm ground when he says restrictions likely to be imposed by the European Union made the deal less palatable. Given the huge market the company would control, this was pretty obvious from the start, surely.
The Bottom Line is Edited By Edward West
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