An international takeover battle for
Billiton’s friendly cash offer of $27 per share tops, by 10%, Noranda’s similar but hostile proposal of $24.50 on Aug. 22. By that time, Noranda had accumulated 8.9% of Rio’s 60.6 million shares outstanding on the open market; its grab for the remainder is backed by Chilean state-owned
An anticipated bidding war immediately caused a flurry of trading activity in Rio shares, pushing them up $2.50 to $28.75 on the day of the Billiton offer — this, in addition to a 45% jump, to $26.30, three days earlier, when 16.2 million shares crossed the floor in reaction to Noranda’s announcement.
Unlike Noranda’s proposal, Billiton’s has the unanimous consent of Rio’s board of directors and therefore does not trigger the company’s shareholder rights protection plan. Rio also has a right of first refusal to match any competing offer, be it from Noranda or others, and has been provided a break fee of US$45 million.
“[In our second-quarter conference call], we said that we were very focused on what Noranda was doing and that we were determined to ensure that our shareholders receive fair value,” says Rio Vice-President Corey Copeland. “With this deal, we think we’ve delivered on that undertaking.”
Copeland adds that a takeover circular is to be mailed shortly and, assuming shareholders accept it, that this may be followed by the deal’s closure a month later. He also notes that the two companies were wrapping up weeks of negotiations when Noranda-Codelco went public.
“The timing of the Noranda bid really was coincidental,” says Copeland.
Rio is Canada’s second-largest copper producer and one of North America’s largest distributors of aluminum and stainless steel. Other key assets include a 33.75% interest in the developing Antamina copper-zinc project in Peru and a 100% stake in the advanced Spence copper deposit in Chile.
Such a strong portfolio is sure to make any battle fierce. Both sides have deep pockets and each sees Rio as an ideal fit.
“The quality and potential of Rio Algom assets represent a unique entry vehicle into the global copper and metals market,” states Billiton chairman Brian Gilbertson in a prepared release. “Given Billiton’s proven project development record, our financial expertise and muscle, and the potential application of our BioCOP technology, we look forward to realizing the potential of the Rio Algom assets by growing our new copper and base metals business into an important source of earnings and value for shareholders.”
Billiton, currently devoid of significant copper production, would see this grow to 550,000 tonnes annually by 2005. This would also complement its push in copper and molybdenum bioleaching technology through a joint-venture signed with Codelco in early August. The deal sealed three years of joint research and will result in another US$200 million being invested over the next six years.
For Noranda, Rio provides an immediate near-doubling in copper reserves to 11.1 million tonnes and assurance that its copper output will rise to 1.2 billion lbs. by 2005. The two already share in an interest in Antamina, and, with the takeover, Noranda’s stake jumps to 50.6%.
Starting in 2002, Antamina is projected to start cranking out 600 million lbs. copper and 360 million lbs. zinc over the next 20 years. Rio’s share amounts to 200 million lbs. copper and 120 million lbs. zinc, plus 2.1 million oz. silver and 2 million lbs. molybdenum.
Spence would start producing 500 million lbs. of copper annually in mid-2004, of which 410 million lbs. would be in the form of concentrate and the remainder as cathode. A feasibility study is expected by year-end. Global resources stand at 400 million tonnes grading 1% copper. Recent metallurgical tests show that the entire middle layer of the deposit, which contains 200 million tonnes of enriched sulphides grading 1.2% copper, is amenable to leaching or flotation.
At presstime, Noranda had announced a request for Rio’s books to conduct a due-diligence review of its operations and assets. When asked if this suggests that a counter-offer in the works, Noranda spokesman Dale Coffin replied: “At this point, we’re saying Billiton had the opportunity to do due diligence and obviously came in at a higher offer. Our offer was based on public disclosure documents, and we feel it would be in the best interest of Rio Algom shareholders that we have that opportunity too.”
Billiton and Noranda each plan to tap existing cash and banking facilities to cover a takeover. The latter’s share would be less, as Codelco would cover half the effective takeover cost.
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