BHP Billiton Ltd, the world's largest mining company, has abandoned its multi-billion-dollar hostile tilt for rival Rio Tinto Ltd due to the turmoil in global financial and commodity markets.
BHP Billiton said concern about taking on greater debt and the difficulty of divesting assets in the current market contributed to the decision to not proceed with a formal bid.
The company will book a $450 million cost incurred in progressing the takeover proposal for the past 18 months.
BHP Billiton chief executive Marius Kloppers said the decision to terminate the deal was made against the backdrop of the global financial crisis.
"It is the short-term outlook that is uncertain and it is just not the time to be taking on the level of debt that exists on the Rio Tinto balance sheet," Mr Kloppers told reporters on a conference call.
Rio Tinto has about $US40 billion ($A61.25 billion) of debt associated with its purchase of aluminium producer Alcan Inc, while BHP Billiton has $US6.3 billion ($A9.65 billion) in debt.
BHP Billiton was offering 3.4 of its own shares for every Rio Tinto share, with the proposal already clearing regulatory hurdles in South Africa - although with some conditions - and in Australia and the United States.
The European Commission, the European Union's antitrust regulator, was expected to rule on the takeover proposal early in 2009, requiring sale of iron ore and metallurgical assets to satisfy the proposed deal.
BHP Billiton expressed concerns over securing "fair divestment values" for the iron ore and metallurgical coal assets, and the non-core assets already flagged for sale by Rio Tinto in the current environment.
"Combine all of those things with a decreased cashflow, certainly in the near term on the back off prices, and you very quickly get to an equation where this is difficult," Mr Kloppers said.
Rio Tinto plc and Rio Tinto Limited released a statement late on Tuesday (AEDT) acknowledging BHP's decision.
"Rio Tinto will continue with its strategy of operating and developing large scale, long life, low cost assets to generate significant value for shareholders," the statement said.
"Rio Tinto has an exceptional portfolio of cash-generative assets and significant stand alone growth opportunities."
BHP Billiton chairman Don Argus said he had called and left a message on the phone of his counterpart - Rio Tinto chairman Paul Skinner - about the company's intention to drop the bid.
Analysts have applauded the decision, given the uncertainty in financial and commodity markets and agreed that BHP Billiton's termination did not rule out the company revisiting the takeover when conditions improved in financial markets.
"I think it is great for BHP. I think it shows a sign of maturity that they're willing to cut their losses and get out of there before it costs too much," DJ Carmichael analyst James Wilson told AAP.
"With uncertain times in global stock markets, it is probably a wise thing to do."
Fat Prophets analyst Gavin Wendt also told AAP it was a wise move for BHP Billiton to drop the bid.
"It was always going to be a high-risk bid with lots of potential stumbling blocks and the biggest one, aside from having to get European Commission approval, is that we're currently in one of the most uncertain financial times that has been witnessed in 80 years or more."
Both analysts agreed that BHP Billiton's withdrawal from the bid did not rule out the company revisiting the takeover when conditions improved in financial markets.
BHP Billiton shares closed up $2.84 at $26.22 and Rio Tinto shares closed $4.10 stronger at $63.90.
However, Mr Kloppers wouldn't be drawn on if the company would revisit the Rio Tinto bid if economic conditions improved.
Separately, BHP Billiton said it would report a $US2.1 billion ($A3.22 billion) impairment charge on its nickel assets at Ravensthorpe in Western Australia and Yabulu in Queensland as a result of a "significant deterioration" in the nickel market.
The company has also approved a $US4.8 billion ($A7.35 billion) investment to expand its Pilbara iron ore operations in Western Australia by 50 million tonnes to 205 million tonnes a year.