BHP Won’t Bid for Rio, Needs Buyback, Southern Cross Says

By Firat Kayakiran Nov. 25 (Bloomberg) -- BHP Billiton Ltd. won’t bid for Rio Tinto Group because the companies’ plan to combine Australian iron-ore operations will provide the benefits of a merger, according to Southern Cross Equities Ltd. BHP abandoned a hostile offer for Rio in November 2008 because of falling commodity prices and Rio’s debt. The two then agreed in June to a joint venture combining their Australian iron ore assets in Pilbara region to save more than $10 billion. “BHP no longer needs the rest of Rio as they are extracting maximum synergies via the Pilbara JV,” Southern Cross Executive Director Charlie Aitken wrote today in a note. “There is zero chance” of a full merger, he wrote. BHP would spend only $3 billion for the iron-ore joint venture instead of a much larger sum for a merger with Rio and would save itself from getting “stuck with a bunch of aluminium assets with heavy exposure to the U.S. economy,” Aitken wrote. BHP should instead conduct a “large scale buyback” of its shares to boost the company’s value against rivals, he wrote. “When the hedge fund world starts working out BHP isn’t coming for Rio you will see this short BHP long Rio trade unwind and BHP start moving to its rightful premium to Rio,” Aitken wrote in the report. “That will accelerate in February when BHP deploy their balance sheet on the cheapest and highest quality resource stock in the world; themselves.” To contact the reporter on this story: Firat Kayakiran in London at fkayakiran@bloomberg.net