BHP Billiton Limited (BHP) has withdrawn its offer for rival Rio Tinto Limited (RIO). The world's largest miner said it no longer believed that the completion of the deal would be in the best interests of BHP shareholders.

Chairman Don Argus said the decision, announced after close on Tuesday, was first and foremost about BHP Billiton shareholder value and risks to shareholder value.

"We have said that we would only seek to complete the transaction if it was in the best interests of BHP Billiton's shareholders," Mr Argus said.

"While we have not changed our view of the basic industrial logic of the combination, or of the longer term prospects for natural resource demand growth driven by emerging economies, we have concerns about the continued deterioration of near term global economic conditions, the lack of any certainty as to the time it will take for conditions to improve and the risks that these issues imply for shareholder value."

Shaw Stockbroking senior analyst Ted Leschke said he felt the real catalyst for the bid being pulled was that BHP believed that the European Commission would have required significant divestments in iron ore and metallurgical coal to address concerns over increase market concentrations.

"BHP would have been prepared to offer remedies if market conditions would have allowed for manageable sales at the right price and in the required time frames," he said.

"BHP felt that there was a high risk that this would not have been achieved."

CEO Marius Kloppers said BHP had previously said that similar cultures and the overlap of key assets and infrastructure made the offer of 3.4 of its shares for every Rio Tinto share a compelling combination.

"BHP Billiton is very focussed on balance sheet strength," he said.

"Recent global events and associated falls in commodity prices have, however, altered risk dimensions."

Mr Kloppers said the greater debt exposure of the combination plus the difficulty of divesting assets would have increased the risks to shareholder value to an unacceptable level.

BHP Billiton said it had received clearance without remedies from the US Department of Justice and the Australian Competition and Consumer Commission.

"BHP Billiton understands that the European Commission will require divestments in iron ore and metallurgical coal to deal with its concerns. In the normal range of economic conditions BHP Billiton would have been prepared to offer remedies which we believe would have been both acceptable and manageable," BHP said in a statement.

"However, given the current economic circumstances and uncertainty regarding our ability to achieve fair divestment values in the required time frames, these remedies would contribute to the cost and risk of the transaction."

BHP said against this background it would not offer any remedies to the European Commission antitrust authorities, and that it expected the European Commission clearance would be withheld without those remedies.

BHP noted that the European Commission's formal review process would likely continue until early to mid January 2009.

The company added that other key elements had substantially increased the risks to shareholder value for the combined company to unacceptable levels included the prospective level of debt of the combined company, compared to the possible cash-flows required to service and repay that debt against the background of difficult economic conditions over the near term.

BHP also cited concerns regarding the ability to divest other non-core assets already flagged for divestment by Rio Tinto including Rio Tinto Alcan Packaging and Rio Tinto Alcan Engineered Products, which impacts the ability to reduce debt and requires the continued management of these complex businesses.

Meanwhile, BHP said if European Commission clearance were to occur, BHP Billiton would be required to seek the approval of its shareholders in Extraordinary General Meetings.

"Were this to happen, BHP Billiton's directors intend to recommend that its shareholders vote against approving the transaction," the company said.

BHP Billiton said it intended to write off the costs of approximately $450 million incurred in progressing this matter over the eighteen months up to Tuesday's announcement in the December 2008 half year results.

At 1106 AEDT, BHP Billiton shares were up $1.98 or 7.5% to $28.20, while Rio Tinto tumbled $22.86 or 35.8% at $41.04.