Competition watchdogs show teeth over world's biggest iron ore venture

The announcement marked the second failed attempt in three years by BHP chief executive Marius Kloppers to buy into Rio's superior iron ore assets, and strengthens the hand of steel mills which feared the pair would gain too much pricing control.

Yesterday's long-expected news also left BHP focussing squarely on a 25bn ($39bn) hostile bid for fertiliser group Potash Corp, no longer distracted by the $116bn marriage of the two miners' mammoth Australian iron ore operations.

"The failure of the joint venture will be slightly more positive for Rio than BHP, but it is important to remember it is actually a negative for both companies," said Ben Lyons, an analyst at ATI Asset Management.

A joint venture between Rio and BHP, the world's second and third largest iron ore miners, would have eclipsed Brazil's Vale, the world's largest supplier, and would have reaped more than $10bn in savings from combining rail and port operations.

BHP and Rio Tinto had a fall-back option to share some iron ore infrastructure in the event the full joint venture failed, but this Plan B is also in doubt, given the opposition that has emerged among competition regulators to the venture.

Analysts had estimated Plan B could yield at least half of the savings envisaged in the joint venture plan. Now, BHP and Rio Tinto will have to review regulators' objections to their joint venture plan to gauge whether even a more modest collaboration would be allowed, a source close to the process said.

The failure of the deal was widely expected after European regulators indicated they would block the deal, so the share price reaction was muted: BHP shares in London fell 1.4 per cent and Rio Tinto lost 1.9 per cent, compared to a 1.6 per cent loss in the mining index on weak metals prices.

Goldman Sachs, Gresham Partners and Lazard will miss out on advisory fees from BHP, while Morgan Stanley, Credit Suisse and Macquarie will miss out on fees from Rio Tinto, in what ranked as the biggest deal in Asia and Europe last year, Thomson Reuters data shows.

Rio Tinto and BHP were recently advised that their proposal would not be approved by competition watchdogs in the European Union, Australia, Japan, South Korea and Germany.

"Extensive discussions with the European Commission indicated the companies would not be able to go ahead with the joint venture without large divestments, which would have destroyed the synergies and eroded long-term growth options," the source said.

Steelmakers cheered the outcome which would leave 30 percent of global iron ore seaborne trade in the hands of Vale, 25 per cent with Rio Tinto and 15 per cent with BHP.