Rio purchase would have created unacceptable risks: BHP Chairman

Singapore (Platts)--27Nov2008 The purchase of Rio Tinto would have created "unacceptable financial risks" for BHP Billiton shareholders amid an almost unprecedented global economic crisis, BHP Chairman Don Argus said Thursday at the company's annual general meeting in Melbourne. "The combined market capitalization of the two companies would have been around $84 billion and the equivalent net debt number was around $78 billion," said Argus. The figure included BHP's proposed $30 billion buyback to fund the purchase. In comparison, a merged BHP-Rio entity would have been worth $298 billion and the net debt around $87 billion, back in February when BHP first launched the offer, Argus said. He noted that a current combined company would have a market gearing ratio of close to 48%, the largest single component being Rio Tinto's debt of close to $40 billion, the majority of which incurred as a result of its A$45 billion acquisition of Alcan in 2007. "This debt position has not been assisted by the fact that Rio Tinto has not managed to sell a number of assets which it identified for sale 12 months ago," Argus added. BHP earlier this week shocked markets when it scrapped its $66 billion takeover offer for Rio, citing turmoil in global markets, falling demand for commodities and Rio's debt.