Noranda sweetens Rio Algom bid

Noranda (NOR-T) has raised its hostile takeover offer for Rio Algom (ROM-T) by $3 to at least $27.50 in cash per share.

This revised offer trumps Billiton‘s all-cash offer of $27 per share, which had the unanimous support of Rio’s board of directors (T.N.M., Sept.4-10/00).

Rio says Noranda’s revised bid will be reviewed and Rio’s board of directors will respond in due course.

The new offer has several contingencies: full access to Rio’s books in order to complete due diligence; a satisfactory due diligence; and the signing of a confidentiality agreement by Rio.

Rio was refusing to give Noranda access to its books, citing the agreement with Billiton in which Rio vowed not to solicit or encourage any competing offers.

Noranda says the due-diligence process is critical. “It will provide us with access to more complete data provided to Billiton, which is necessary to better value the company,” says Noranda President David Kerr. “In the event that we can identify additional value in Rio Algom that we were previously unaware of, we propose to bid at least $27.50 per common share. We are working to make sure we present the most attractive offer for Rio Algom shareholders while meeting our own value creation and growth criteria.”

Noranda’s revised offer still contains an agreement to sell a half-interest in Rio’s assets to Codelco (Corporacion Nacional del Cobre de Chile), which is owned by the Chilean state. The sale would take place immediately upon closing of the Noranda offer, at the same effective price paid by Noranda. The two companies would then jointly manage Rio’s assets.

Noranda’s revised bid values Rio at $1.67 billion, compared with Billiton’s $1.64-billion offer. The winning side must also assume Rio’s liabilities. They total about $1 billion.

Both bids are conditional upon the acquisition of at least two-thirds of Rio’s 60.6 million outstanding shares. Noranda already owns a 9% stake in Rio. Billiton’s holding is reportedly minimal.

In the Billiton-Rio transaction, Billion’s financial advisors are BMO Nesbitt Burns and Chase Manhattan and Rio’s are RBC Dominion Securities and Credit Suisse First Boston. The transaction allows Billiton a break-up fee of US$45 million and the right to match any competing offer.

Fuelling the bidding war between Noranda and Billiton are Rio’s key assets: a number-two ranking in copper production in Canada; a position as one of North America’s largest distributors of aluminum and stainless steel; 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.

By buying a half-stake in Rio, Noranda would nearly double its copper reserves to 11.1 million tonnes, boost its copper output to 1.2 billion lbs. by 2005 and provide operational synergies in Latin America.

An acquisition by Billiton would increase the British major’s nominal copper production to 550,000 tonnes annually by 2005. It would also complement its push into copper and molybdenum bioleaching technology through a joint venture with Codelco.