Albanese Irks Rio Holders as BHP Opposition Costs $50 Billion

Dec. 11 (Bloomberg) -- Rio Tinto Group Chief Executive Officer Tom Albanese cost investors almost $50 billion when he repelled BHP Billion Ltd.’s bid to make the world’s largest mining acquisition. As commodities prices plunge amid a global recession and Rio struggles with $38.9 billion in debt, shareholders say Albanese should have been more open to a deal. London-based Rio has fallen 38 percent since BHP withdrew its bid on Nov. 25, making it the worst performing stock in the 14-member Bloomberg Europe Metals & Mining Index since that date. BHP advanced 26 percent. “I don’t know the Rio board that well, but they should be asking some questions,” Tim Barker, who helps manage more than $54 billion of assets, including BHP and Rio shares, at BT Financial Group in Sydney. “I wouldn’t want to be in Albanese’s shoes.” Albanese, a third-generation Italian-American, yesterday unveiled a plan to eliminate 14,000 jobs, reduce spending on new projects by $5 billion and consider joint ventures in an effort to pare its debt. The cuts are the cost of Albanese’s successful yearlong opposition to a takeover by BHP and his decision to buy Canada’s Alcan Inc. for $38.1 billion last year. Melbourne-based BHP, the world’s largest mining company, said it abandoned the takeover bid because Rio’s debt, regulatory hurdles and falling commodity prices made the deal too risky. At today’s market prices, BHP’s all-share offer for Rio would be worth $82.9 billion, or $49.2 billion more than Rio’s current market value of $33.7 billion. No Regrets Albanese, 51, yesterday defended his decision not to meet with BHP CEO Marius Kloppers to discuss the offer. “I don’t think it would have changed the outcome,” he said on a conference call with reporters. Since August, the recession has cut demand for commodities and snapped six years of gains in metals prices. “These are periods that you don’t enjoy at the time and they are very hard decisions to make,” Albanese said in a telephone interview. “They are not necessarily popular decisions to make, but they are the right decisions.” Rio rose 256 pence, or 20 percent, to 1,514 pence yesterday in London trading, compared with a 0.3 percent decline in the FTSE 100 Index. Albanese, who was paid $3.1 million in salary and bonus last year, became chief executive at Rio in May 2007, just six months after Kloppers was named to head BHP. His opposition to BHP’s offer and the purchase of Alcan, the world’s third-largest aluminum maker, have defined his tenure. Since Albanese bought Alcan for cash, pushing Rio’s debt to $42.1 billion, the price of aluminum has dropped 48 percent on plunging demand for the lightweight metal as stockpiles advanced to a 14-year high. The plan announced yesterday is designed to reduce the debt by $10 billion by the end of 2009. Rio’s Debt “Rio has really been hurt by this debt,” said Graham Birch, who helps manage $40 billion in natural resources assets at BlackRock Investment Management in London. “Albanese has to tackle that. That is the big job in front of him. One way of doing that is to stop spending money.” Albanese, a mining engineer by training, made his name at Rio in 1993 when he convinced his bosses to let him try to turn around a money-losing zinc mine on Alaska’s Admiralty Island that the company had acquired in a takeover. Within three years, Albanese had the mine turning a profit. Last February, nine months after becoming CEO, Albanese sold the Greens Creek mine to Hecla Mining Co. for $750 million to reduce Rio’s debt. “You can’t be sentimental about these things,” Albanese said in a March interview. “There was a tear in my eye when we sold Greens Creek.” Albanese grew up in New Jersey before earning a bachelor’s degree in mineral economics at the University of Alaska, where he later completed a master’s in mining engineering. In 1981, he became a junior engineer at an Alaskan gold project that was later acquired by Portland, Oregon-based Nerco Inc., owner of the Greens Creek mine. Albanese Defenders Albanese moved to London in 1995 to become Rio’s exploration chief. Three years later he was appointed vice president of the Kennecott Utah Copper unit, and in 2006 he became director of group resources. Married with two children, Albanese is a hiker and owns a canal boat moored on London’s Thames River. Even after Rio’s stock declined, Albanese has his defenders. “Of course, all shareholders would have wanted a deal, but I think the board of Rio was on his side and they weren’t ready to fold their cards,” said Ian Henderson, who manages $7 billion in natural-resource assets, including Rio shares, at JPMorgan Chase & Co.’s asset management unit in London. “No company wants to make major changes at the moment, and Rio is no different. We will have to see how he works these things out.” Others aren’t as forgiving. “Management has got to be blamed,” said Albert Hung, who manages A$1.2 billion ($790 million) at Alleron Investment Management Ltd. in Sydney, including shares of Rio and BHP. “As far as the Rio shareholders go, they lost and they lost seriously.”