November 25, 2008 3:28 PM

BHP Billiton--Rio Tinto Deal Falls Apart

Posted by Zach Lowe

The news came suddenly, says Elizabeth Holden, a partner at Slaughter and May who has spent about 18 months orchestrating BHP Billiton's attempted takeover of fellow Anglo-Australian mining giant Rio Tinto. On Tuesday, somewhere in Australia, BHP's board met and decided that a drop in metal prices and the global economic crisis made the deal (now worth about $60 billion) too risky to consummate.

"It was very surprising," Holden says. Her partner, Nigel Boardman, one of last year's Dealmakers of the Year in The American Lawyer for his role in orchestrating the hostile takeover, may well have been in the boardroom when the plug was pulled: On Tuesday, he couldn't be reached for comment; his e-mail auto-response said he was away from his U.K. office and located somewhere 11 hours ahead of London time; Holden says she has no idea whether Boardman was there when the deal they've worked on together since early 2007 died.

"It's very disappointing personally," Holden says. "You invest so much in something like this."

The deal had many hurdles to overcome, including Rio Tinto's steadfast opposition (Holden says there was "no interaction" between BHP's lawyers and Rio's representatives at Linklaters and Allens Arthur Robinson). Another challenge: demands from the European Union antitrust authorities that BHP divest itself of some assets. Japan and China also opposed the deal, since they rely on BHP and Rio, the world's first- and third-largest mining companies, for about 60 percent of the iron ore and other raw materials consumed by their steelmaking industries.

In a statement, BHP said it might have been willing to divest itself of some iron ore or coal plants, but that such drastic steps are just too risky given the crumbling economy. The company also cited the plunging price of copper, down 43 percent between October 2007 and October 2008--and another 23 percent in November alone, the New York Times says.

The deal is a blow for several other firms, including Skadden, Arps, Slate, Meagher & Flom, which assisted the BHP team on M&A issues and headed up successful antitrust efforts in the U.S. David Fox, the head of the Skadden team on the deal, did not respond to messages seeking comment. Richard Godden, head of the Linklaters team representing Rio, declined comment; a firm spokeswoman said the firm wouldn't talk about the deal.

Holden says she knows there will be other deals, but none with the complexity of the failed BHP-Rio takeover. Experts believed the deal, had it gone through, would have been the first between two dual-listed companies (shares of both are traded on U.K. and Australian exchanges). Still, Holden says, the work was worthwhile--even the task of coordinating phone calls between key players in New York, Australia and London.

"BHP is a great company," she says. "This was a tremendous experience."

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