BHP Billiton rumoured plotting Rio Tinto bid

Vancouver – Market buzz has the worlds largest mining company BHP Billiton (BHP-N, BHP-A, BLT-L) brewing up a takeover bid for rival giant Rio Tinto (RTP-N, RIO-L) in what would be the largest ever merger in the industry.

Street talk of BHP Billiton plotting a hostile bid for Rio Tinto, after a supposed earlier “friendly” offer of around US$90 per share was snubbed, rallied the markets of both companies.

Rio Tinto’s ADRs (American Depository Receipts, each representing four ordinary shares) surged as much as 20% in May 9th New York trading while shares of BHP Billiton posted gains of more than 5% as the investment community digested the potential merger of the major mining houses.

Should a takeover run materialize, it would likely be valued in the US$100-billion range and if successful would create a mining colossus sporting a market capitalization in the order of US$250 billion. A combined BHP Billiton-Rio Tinto would rank as one of the world’s largest corporations.

In a statement, Rio Tinto denied knowledge of any takeover offer being tabled. Meanwhile, a BHP Billiton spokesperson commented, “We have not made any announcements in relation to yesterday’s market rumours.”

The mining industry has seen surge in mergers and acquisitions as companies jockey to gain investment market share and create synergies.

Alcoa (AA-N) recently tabled a hostile US$33-billion bid for Canadian aluminum rival Alcan (AL-T, AL-N), looking to solidify itself as top producer of the light metal.

Other metal sectors have also seen recent mergers. In early 2006, Barrick Gold (ABX-T, ABX-N) acquired Placer Dome in an offer valued at US$10.4 billion.

Last year the nickel sector saw Brazilian-based Companhia Vale do Rio Doce (RIO-N) and Swiss firm Xstrata (XTA-L, XSRAF-O) take out Canadian mining institutions Inco and Falconbridge respectively.

Even more recently, copper-giant Phelps Dodge was acquired by US rival Freeport McMoRan Copper and Gold (FCX-N) through a US$26-billion takeover bid.

The trend towards industry consolidation is also prevalent in the mid-tier and junior sectors with a plethora of companies joining forces to rise amongst the crowd.