Inconvenient truth

Rio/BHP: Rio Tinto's joint venture with BHP Billiton has become a drawn out engagement that is very short on commitment. Investors have long regarded the plan to combine the two mining giant's Western Australian iron ore assets as a fantasy. But leaks from Rio's boardroom that its management takes the same view are embarrassing all the same - not least because Rio might get something out of maintaining the dalliance a bit longer.

The Anglo-Australian miner says it hasn't made a final decision about the deal. Still, it is no surprise that Jan du Plessis, Rio's chairman, is strategising over how to present the probable eventuality. "We should simply work on the basis that both parties worked well and in good faith to make this thing work and both parties agreed, simultaneously, it wasn't possible," the Sydney Morning Herald quoted him telling his directors.

Rio negotiated the tie-up in 2009 when the miner was struggling under a mountain of debt. The perception is that its then position of weakness is reflected in the terms. Rio's shareholders are unlikely to approve the tie-up unless BHP agrees to increase the $5.8 billion it was due to pay to its partner as an "equalising payment".

But while Rio may be ready to walk away from the partnership, the ideal moment to do so would be after all the key regulators have indicated their response.

Regulatory thinking on the combination is precious strategic intelligence for Rio. The group has had feedback from regulators in Korea and Japan noting potential obstacles to the deal. Australia delayed formally announcing its decision last month at the request of the miners. The important missing piece is the European Commission.

Rewind three years to BHP’s hostile bid to takeover Rio. The market downturn prompted BHP to abandon its offer - but not before the Australian regulator cleared the merger and the EC privately outlined its concerns to BHP. The hostilities meant Rio never had access to this information, which would be valuable in any future discussions on a tie-up with BHP.

Sadly for Rio, the leak now puts pressure on it to stop shilly-shallying and call time on the JV sooner rather than later. If the miner has to scrap the plan without a clear idea of where the regulators would have stood, the whole process really will have been a complete waste of time.