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Why the Proposed CHINALCO Investment in Rio Tinto Failed

In: Chinese Investment in Australia

Author

Listed:
  • Xueli Huang
  • Ian Austin

Abstract

On 12 February 2009, the board of Rio Tinto (“Rio” hereafter) announced that it had struck a deal of $19.5 billion with CHINALCO. This was by far the largest deal in Chinese and Australian corporate history. If this transaction was successful, the deal could deliver great strategic and financial benefits to CHINALCO and Rio, such as helping Rio to meet its $18.9 billion debt maturities before October 2010. This would enhance Rio’s ability to obtain further funds for major project development, increasing CHINALCO’s share in the Rio Tinto Group from 9 per cent to 18 per cent for a relatively low price. Strategically, the partnership between Rio and CHINALCO could leverage the complementary strength of both parties, particularly CHINALCO’s ability in delivering infrastructure projects and Rio’s operational efficiency. Nevertheless, Rio informed CHINALCO on 5 June 2009 that it had terminated the agreed deal and would pay CHINALCO the agreed break fee of $195 million. This was only ten days before the due date for Australia’s FIRB to make its decision on CHINALCO’s investment application and 114 days after the deal announcement.

Suggested Citation

  • Xueli Huang & Ian Austin, 2011. "Why the Proposed CHINALCO Investment in Rio Tinto Failed," Palgrave Macmillan Books, in: Chinese Investment in Australia, chapter 6, pages 140-174, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-31415-3_6
    DOI: 10.1057/9780230314153_6
    as

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