After months of speculation, BHP Billiton (BHP-N, BLT-L, BHP-A) has finally made a formal bid for Rio Tinto (RTP-N, RIO-L, RIO-A), and bumped up its offer to boot.
But the new all-share offer of 3.4 shares for each Rio Tinto share – up from a 3-for-1 proposal announced late last year – was quickly rejected by Rio’s board, which said it was not in the best interest of shareholders.
Rio has proven difficult to woo ever since BHP first proposed a friendly merger between the companies in early November, refusing to engage in discussions.
“BHP’s offers, while improved, still fail to recognize the underlying value of Rio Tinto’s quality assets and prospects,” said Rio Tinto chairman Paul Skinner in a statement, referring to “inter-conditional” offers for both Rio’s London and Australian-listed stock. “Our plans are unchanged, and will remain so unless a proposal is made that fully reflects the value of Rio Tinto.”
Already the world’s largest diversified miner, BHP says the combination would be an “unparalleled strategic fit,” providing US$3.7 billion per year in savings within seven years of the merger. The Australia-based miner cited production and operational efficiencies in areas where both it and Rio – the world’s third-largest miner — have operations.
“Whilst both BHP Billiton and Rio Tinto have proven strategies and excellent future growth prospects on a standalone basis, a combined entity would be able to unlock significant additional value for both sets of shareholders and be in an unparalleled position to capitalize on future opportunities,” said BHP chairman Don Argus in a release.
Based on Monday’s share prices for both companies, BHP put the value of its offer at US$147.4 billion. But it may not be enough to entice shareholders.
Aluminum Corp. of China, or Chinalco, last week teamed up with
On Monday, Reuters reported that Chinalco president Xiao Yaqing said the company was not preparing a bid for Rio Tinto. But the miner is owned by the Chinese state, which has a keen interest in metals supply and prices, given the country’s ongoing economic boom.
BHP’s offer is conditional on 50% of Rio shares being tendered, and the company is proposing a share-buyback of up to US$30 billion within a year of a completed merger.
Rio Tinto shares were down US$12.98, or 3.1%, at US$408.52 in late afternoon trading in New York today, and down 17 pence at 54.17 in London. BHP was down 77 pence, or 4.8%, in London at 15.20, and traded US$3.36 lower at US$66.12 in New York.
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