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BP’s search for chairman in disarray as Skinner decides to remain at Rio

February 16, 2009

BHP Billiton considers new bid for mining rival

BP was forced to go back to the drawing board in its search for a new chairman last night after Paul Skinner, the leading candidate, withdrew from the race.

Mr Skinner, the chairman of Rio Tinto, had been hotly tipped as the next leader of BP, Britain’s largest company, after the retirement later this year of Peter Sutherland. Over the weekend, however, Mr Skinner, a former Shell executive, pulled out after becoming embroiled in a damaging boardroom split over the direction of Rio, which is struggling to deal with its $38 billion (£27 billion) debt pile.

Instead of moving to BP, he will remain with the mining company and try to secure approval from shareholders for a controversial $19.5 billion cash injection from Chinalco, the metals group that is controlled by the Chinese Government.

The dispute over the direction of Rio Tinto has plunged BP’s search for a successor to Mr Sutherland into disarray. Although BP had never confirmed the candidacy of Mr Skinner, his appointment had been widely expected to be announced at the annual meeting on April 16.

That timetable is expected to slip because BP has asked Anna Mann, the headhunter leading the search, to draw up a new list of candidates. Mr Sutherland has agreed to stay on until a successor can be found.

A spokesman for Rio Tinto declined to comment and BP said that its search for a chairman continued.

BHP Billiton, the world’s largest mining group, is weighing up a fresh approach for Rio Tinto after hearing from investors angered by the Chinalco deal. BHP is understood to have told Rio investors that it is in “listening mode” about a potential renewed bid for its rival, which could see off Rio’s planned tie-up with Chinalco.

The proposal had been fiercely opposed by Jim Leng, the chairman-designate of Rio, who had been hired to replace Mr Skinner last month but resigned in protest a week ago. He was sympathetic to the views of Rio’s institutional shareholders, which have emphasised that, if the company needed to raise capital, they would prefer it to do so through a rights issue in which they could participate.

BHP is said to have insisted that any deal would have to be “significantly appetising” for it to forge ahead after the failure of its hostile bid last year. Efforts by frustrated Rio shareholders to win over BHP are understood to have included a promise to back a rights issue.

Last week Rio detailed the deal with Chinalco, which is to give the Chinese company an 18 per cent stake in Rio. The Anglo-Australian group is to raise $12.3 billion by selling stakes in mining assets to Chinalco and a further $7.2 billion by issuing a convertible bond to the Chinese company. However, the deal triggered a loud protest from leading investors, including Legal & General, Rio’s second-largest institutional shareholder, amid concern that the stakes had been undervalued, that other cash-raising options, such as a rights issue, had not been pursued and that existing shareholder rights had been disregarded.

People with knowledge of BHP’s strategy said: “BHP is a well-run, effective organisation that will review all possibilities in all circumstances. It is in listening mode. But there are lots of other bargains in this world.”

The group, which simply could make counter-offers for some of the stakes being offered by Rio to the Chinese, is aware of potential Takeover Panel constraints. BHP is blocked from initiating a new unsolicited bid before November under City rules, although the planned Chinalco tie-up could give it more flexibility.

Rio Tinto shareholders will not vote on the Chinalco deal until May.

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