Thursday, November 27, 2008

How has the dropped bid for Rio Tinto by BHP influenced share prices of each?

From FTAlphaville:

BHP Billiton, the global miner, painted a gloomy near-term outlook for metals demand on Thursday as it defended its decision to drop a $66bn bid for rival Rio Tinto, reports Reuters. BHP, facing its shareholders for the first time since walking away from the Rio bid on Tuesday, told its Australian annual meeting that uncertainty in commodities markets would continue in the short term and it was ready to close loss-making operations. Marius Kloppers, BHP chief executive, warned shareholders in Melbourne that Chinese steel production would decrease 17% year-on-year and that BHP would not be “immune” to global economic uncertainty. Lex says BHP’s investors should “thank their lucky stars” that Kloppers and chairman Don Argus saw sense to pull the Rio deal – and should “press for a more honest appraisal of the wretched operating environment.

Shareholders of BHP Billiton (BLT) greeted the news positively; pushing the stock beyond prior supply and in the process confirming a double bottom. This sets up a possible move to July/August reaction highs. I have created a call for a push to 1752p over the next 6-months - we'll see how this evolves.

On the other side of the deal is Rio Tinto (RIO). The collapse of the buyout deal generated a price breakdown, two days prior to BHP's upside break of the same trading pattern (given stock behaviour of a buyout target typically matches that of the acquiree). The chart provides very little comfort for bulls.

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Dr. Declan Fallon, Senior Market Technician, the free stock alerts, market alerts, and stock charts website