BHP dumps $58 bln Rio bid on weaker markets, EU

SYDNEY, Nov 25 (Reuters) - Top global miner BHP Billiton walked away from its $58 billion hostile offer for rival Rio Tinto on Tuesday, citing worsening market conditions and European regulators' demands it sell prized iron ore and coal assets. BHP said the European Commission wanted divestments in both iron ore and coal as a condition of the all-share deal which, when it was first proposed just over a year ago, was worth around $140 billion, making it the second biggest corporate bid after Vodafone's 2000 acquisition of Mannesmann. "There's certainly been no indication BHP would do this -- it's a surprise," said Tim Barker, resources analyst at BT Financial Group in Sydney. "This decision suggests BHP's board have looked at what's going on in the market and realised the situation is not quite what it was before because of the economic deterioration." Traders in London predicted BHP shares would open 20 percent higher, while Rio Tinto would fall 30 percent. Iron ore was one of the main reasons behind BHP's bold bid, that would have combined the world's second- and third-largest iron ore producers' assets. But faced with a 300-plus page statement of objections from Europe, which sought the sale of iron ore assets in the key Pilbara region in Western Australia, BHP has ditched the bid just days ahead of a Monday deadline to offer Brussels concessions. Rio Tinto consistently rejected BHP's offer of 3.4 of its shares for each Rio share as undervaluing the company. BHP said it no longer believed its proposal was in shareholders' best interests, adding it would write off around $450 million in costs. Rio said it had no immediate comment. Global steelmakers had opposed the deal, fearing a mega-merger that would control more than a third of the world's seaborne trade in iron ore, the main raw component in steel, would yield too much clout over pricing. "The news is positive for (South Korean) steelmakers. When BHP's bid first became known, there were worries that it may cause inflexibility in iron ore pricing," said Kim Hyun-tae, analyst at Hyundai Securities in Seoul. "However, how much the news will help share prices of steelmakers like POSCO still remains to be seen. We will have to watch U.S. steelmakers for reaction to it."