BHP drops bid for rival Rio Tinto
TEXT OF INTERVIEW
Scott Jagow: One of the world’s biggest takeovers isn’t going to happen. Today, the mining company BHP Billiton dropped its hostile bid for rival Rio Tinto.
We’re joined by economist Bob McKee in London. Bob, this looked like a done deal. What happened?
Bob McKee: Well, the merger bid has been dragging on for some time, and during that period of time we’ve seen a collapse in the commodity prices around the world. So BHP decided the likely revenues they’re going to get from this merger just don’t warrant the huge cost and organization that would be involved in persuing this bid.
Jagow: I imagine that steel companies are pretty happy that this merger didn’t happen. They were very opposed to it, why?
McKee: Well clearly, what would happen then, if you’d, had they’d had one big supplier that they’d have to go to, and the cost of raw materials could rise quite sharply in an environment where they’re beginning to see their customers disappear as well — ship builders cutting back, motor car companies in deep trouble. The prospects for the steel companies are very bad, and if it meant that they can also face quite sharp price increases, that would put them in a very difficult position. So at least they’ve got some different suppliers to go to to try to get the best price.
Jagow: And the European markets are down this morning. Does this have anything to do with that?
McKee: Partly. The London Stock Exchange has a lot of mining companies on the index. But of course, I think the general mood today is taking profits after some big rallies that we’ve seen, both in Wall Street and in Europe over the past few days, because there isn’t any other news coming onto the horizon.
Jagow: Bob McKee, chief economist at Independent Strategy in London. Thank you.
McKee: OK.
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