Rio Tinto¡¯s Chinalco U-Turn May Not Save Albanese (Update2)

Rio Tinto Group Chief Executive Officer Tom Albanese¡¯s decision to ditch an Aluminum Corp. of China investment in favor of a $15.2 billion rights offer to appease shareholders may not be enough to keep him in the job.

Albanese, 51, described the proposal from Chinalco, as the state-owned company is known, in February as ¡°the best financial solution¡± to reduce debt, having earlier rejected a $66 billion takeover bid from BHP Billiton Ltd. Now, the $19.6 billion investment is off, and BHP will pay $5.8 billion to create an iron-ore joint venture with Rio.

¡°He has to go,¡± said Charles Kernot, a London-based analyst at Evolution Securities. ¡°He¡¯s been so closely associated with this deal that its failure must almost seal his fate.¡±

Rio¡¯s shareholders such as Legal & General Group Plc and the Association of British Insurers had criticized Chinalco¡¯s proposed purchase of convertible bonds and asset stakes because it excluded other investors. Australia began an inquiry into foreign investment rules and some politicians called for the plans to be blocked.

Earlier transactions have also raised ire. Albanese took over in May 2007, just a month before Rio made a $38.1 billion offer for aluminum producer Alcan Inc. That left London-based Rio needing to make payments on its debt as commodity prices fell. The CEO rejected the takeover offer from BHP last year, before BHP abandoned its bid. Albanese said on a conference call today he still has the support of the board.

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