Sell-off pressure on Rio after BHP pulls bid plug

BHP's decision yesterday to pull its $66 billion (£42.9 billion) bid sent Rio's shares plunging by almost 40%, amid concerns Rio would struggle to sell assets and cut its $39 billion debt mountain during a global recession.

BHP Billiton cited Rio's debt position in scrapping its hostile bid approach, as well as sliding metals prices, the threat of global recession and demands from European competition regulators to sell off some iron ore and coal assets.

The value of BHP's hostile all-share bid for Rio fell from more than $140 billion when it was first announced in November 2007 to around $62 billion last week.

But Rio chairman Paul Skinner said the group was comfortable with its financial position, remained committed to increasing its dividend, and dismissed market speculation that Rio would now need to raise equity.

He said it would make asset sales in the next few months. "We now move on; we have a very strong company," Skinner said.

Rio took on debt to finance its $38.1 billion purchase of Alcan in late 2007 and committed to sell $15 billion in assets, including $10 billion this year, but the timeframe has slipped.

The prospect of billions of dollars of disposals will bring cheer to the company's advisers, who have already pocketed around $160 million for defending Rio against BHP's advances.

Rio used eight banks in London and Sydney and will now turn to its advisers, which include Morgan Stanley, Credit Suisse, ABN Amro, JPMorgan Cazenove and Rothschild, to start the ball rolling on the asset sale plan.

However, the outlook is less encouraging for BHP's advisers, which along with the company's shareholders have emerged as the biggest losers.

After working on the bid for more than a year, Goldman Sachs, Citigroup, UBS, Merrill Lynch and HSBC are among those banks that will receive relatively little compensation for their efforts because fees paid to firms advising on hostile deals are skewed heavily towards a successful outcome.