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14 months later, BHP takeover of Rio will not go forward.

By Leia Michele Toovey- Exclusive to Aluminum Investing News

If there was anyone who had reason to celebrate the failed BHP takeover ^[2] of Rio Tinto, it would be China; more specifically Chinese smelters ^[3].

Last February, Aluminum Corp. of China together with Alcoa, paid $14.1billion for a 12 per cent stake in Rio-Tinto's London listed shares, giving it a 9 per cent share of the Rio Tinto Group.  Aluminum Corp put up most of the money, and many saw the move a tactical one aimed at spoiling the BHP-Rio tie up.  A joint BHP-Rio entity would have enormous power over key raw materials, and this would hurt China's large steel industry. Conspiracy theorists theorized that the move was engineered by Beijing.

The £60 ($90.52) a share Aluminum Corp and Alcoa paid was a generous 21 per cent premium to Rio's stock price back in February. Following a 36 per cent plunge in early trading Tuesday after BHP pulled its bid, the stock is now 74 per cent below what was paid. Now that Rio's share price has collapsed further, Aluminum Corp may choose to raise its stake; to the maximum allowed 14.99 per cent. The other big winner in the failed takeover has so far been BHP shareholders ^[4].  On the news of BHP pulling out, BHP shares jumped as high as 20 per cent, fluctuating in the +15-20 per cent range.

BHP raised the all-stock bid for its rival back in February, offering 3.4 of its own shares for every Rio Tinto share.  The deal was worth close to $150 billion when it was announced, but at the present time with BHP's current share price it is worth around $66 billion. The world's biggest mining company has blown a massive $450 million on the failed bid, adding to a $380 billion worth of global mergers and acquisitions that have been abandoned in the past three months. BHP's decision was revealed after the close of trading in Australia yesterday. In a sign that BHP remains confident demand for raw materials will pick up again, it announced it had approved a massive $US 4.8 billion investment in Western Australia's Pilbara. A major reason behind BHP's bid for Rio was the potential combination of their iron ore operations in the Pilbara, which had the potential to save billions in costs.

BHP Chief Executive Marius Kloppers said the global market turmoil and a slump in commodity prices had altered what had been a "compelling" case for merging the world's second- and third-largest iron ore producers. However, due to the equity crunch financing such a large transaction proved too risky to undertake. Kloppers is being applauded for this decision.  BHP will expand its own operations rather than take the risk of acquiring mass amounts of debt in the midst of an equity crunch.  This "humble" decision, after months of money and time is regarded highly, especially considering the new light under which the world is viewing risk taking CEOs.

Shares of aluminum companies sank Wednesday after the spot price of the commodity closed near a three-year low. The price of aluminum closed Monday at 86.35 cents per pound, an all-time record low for November and the lowest price since October 2005.

As the price of aluminum caves, analysts are reassessing the value of Aluminum companies. JP Morgan has downgraded Century Aluminum Co., slashing the 2009 earnings-per-share estimate for Century to 25 cents from $2.36, assuming an aluminum price of 97 cents per pound instead of a prior view of $1.09 per pound. Shares of Century plunged $2.39, or 27.4 per cent, to $6.35 in afternoon trading. Full-year 2009 earnings estimate for Alcoa Inc. has been cut to 24 cents per share from 80 cents per share, assuming an aluminum price of 97 cents per pound.