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BHP's Kloppers still positive on bid
Allan Seccombe
Posted: Tue, 27 Nov 2007
[miningmx.com] -- MARIUS KLOPPERS, head of the world’s largest resources company, said Rio Tinto shareholders liked the proposal to merge the two companies and he sounded a sanguine note on competition concerns.
These comments come amid speculation that BHP Billiton's bid for Rio Tinto, which yesterday again rejected the 3:1 share offer, is losing momentum. Rio's Tom Albanese offered a spirited rebuttal to BHP Billiton unveiling $2.4bn in new investment, the prospect of higher dividends, and value created from asset sales.
Kloppers, who estimated he has seen more than half of the institutional shareholders in Rio Tinto, insisted the response from them had been positive.
“I’ve not been able to talk to them (Rio’s board). I’ve only been able to talk to their shareholders. And the shareholders, as I’ve stated, in majority, a vast preponderance, believe that there’s industrial
logic here,” he said.
BHP is targeting shareholders to force Rio into a meeting. “Shareholders own companies not management and shareholders will ultimately tell what they want management to do,” he said.
Brian Gilbertson who once headed BHP Billiton, was unceremoniously fired when he tried to affect a tie up with Rio, notably without the board’s backing.
Asked if he viewed this as a career making or career breaking move, Kloppers didn’t venture far from the company line. “My own wishes and desires are completely unimportant in this set of circumstances. We’re only here to unlock value for shareholders and to create value for shareholders.”
This proposal has been a long time in coming. Some argue it’s been brewing since the late 1990s because the two companies mine the same minerals in much the same countries.
Kloppers said the first formal contact with Rio was in April 2007 under former CEO Chip Goodyear. It was exactly then that the persistent
rumour of a tie-up between the two companies began to trickle into the market.
But it was only after Britain’s Takeover Panel asked about a run-up in Rio’s share price in the first week of November that BHP came clean on its overture to its peer.
There has been a backlash from steelmakers, who argue the proposal would make the merged entity the single largest iron ore producer behind Brazil’s
CVRD.
The International Iron and Steel Institute, representing 180 steel companies and 75% of production outside China, said the combination of the businesses would create a monopoly in the iron ore sector. The two companies along with CVRD supply 70% of all seaborne iron ore.
“For this reason, not only will the steel industry strongly oppose the potential merger of BHP Billiton and Rio Tinto, but it is vital that the competition authorities in the EU, USA, China, Australia and Japan also recognise the threat that this merger poses to the interests of steel consumers and the general public,” said IISI Secretary General Ian Christmas.
Similar sentiments were expressed by the Chinese and Japanese iron and steel representative bodies, which called the proposal unfair and undesirable for competition and pricing.
Barend Ritter, a senior portfolio manager at Sanlam Investment Management, said the European and Australian competition authorities could allow the
transaction to proceed, but prevent sales in their markets.
“The outcome as I see it is that BHP has to give away a few things to score the bigger win of bringing the two companies together. In iron ore, the combined operations will have more flexibility and accommodating smaller players will be easier,” Ritter said.
BHP is unlikely to substantially improve its offer, but could tweak the share ratio or offer a cash sweetener, he added.
BHP will tell the EU competition authorities the transaction, if successful, would not create economic harm for iron ore buyers, Kloppers said.
“We’ve said we’ll do every thing in our power to sell iron ore at market prices. This is a powerful proposition for customers and that is the proposition that we will discuss with competition authorities,” he said.
“It is our position that there is no economic harm and that therefore no remedy is required.”
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