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BHP ups all-share offer for Rio
Julie Bain
Posted: Wed, 06 Feb 2008
[miningmx.com] -- BHP Billiton has raised its offer for Rio Tinto, indicating the Melbourne based resources giant is prepared to fight to win control of its rival, prompting a muted response from the takeover target.
The company has offered 3.4 BHP shares for each Rio Tinto, an offer equivalent to
$147.4bn. The increased bid comes after a move to stymie the BHP's advances on Rio by Aluminium Corp of China (Chalco), which this week said it had bought a 12% stake in Rio worth $14bn on the open market.
“The Boards of Rio Tinto will consider the terms of the proposal carefully in the light of all circumstances and will make a further statement once they have completed this assessment. In the meantime, the Boards encourage shareholders not to take any action,” Rio Tinto’s chairman Paul Skinner said in a statement.
The offer is a 13% increase on BHP Billiton's proposed offer
of 3:1 made last year. It did not make a formal bid then but its hand was forced by the UK takeover panel regulatory authorities which invoked the "put up or shut up" rule.
As part of the offer BHP Billiton has included a minimum acceptance condition requiring acceptances relating to more than 50% of the publicly-held shares in each of Rio Tinto Limited and Rio Tinto.
BHP Billiton is not alone in its interest in Rio. Chinese aluminium group Chalco together with Alcoa, have bought a 12% stake in Rio for $14bn.
"Let me be clear the acquisition of 12 % at £60 a share does not present a benchmark for an all-share offer in Rio Tinto. Shareholders did it (sold shares) for cash, selling any exposure to upside,” said BHP CEO Marius Kloppers.
“The circumstances are completely different to our offer. This is an all-share transaction, receiving a premium and pro rata share of the combined synergies and the opportunity to participate fully in the long term
value opportunities in the growth in our industry," he said.
"The only thing that matters here is the relative value of two companies."
Initial market reaction to the revised offer and the company’s results was not favourable with BHP Billiton's share price falling on the Sydney stock exchange.
To date there have been no talks between Rio Tinto and BHP Billiton, with the former
rejecting the overtures from the latter as undervaluing the company. Analysts have suggested that there many now be a protracted takeover battle.
"Were it not for the BHP Billiton offer it is our strong view that the underlying fundamentals of Rio Tinto do not support anything like the current share price," said Kloppers.
BHP Billiton, reporting for the half-year to end-December 2007, said its attributable profit fell 2.8% to $6bn down 2.8%, the first decline in profit in years. EPS of 106.8 US cents was up 8% with EPS benefiting from share buy-backs (both measures excluding exceptionals). It reported record production of in seven of its commodities and record half-year results for iron ore, petroleum and manganese.
BHP said it plans to propose a buy-back of up to $30bn within one year of completing the Rio deal if its offer proves successful.
BHP has arranged a banking facility of $55bn. This money together with cash flow from operations and
disposals would be all the money necessary to fund the proposed buy back of $30bn and any refinancing of Rio Tinto borrowing that might be required, Kloppers said.
BHP Billiton believes that the combination creates value for existing BHP Billiton shareholders who will own approximately 56% of the enlarged group.
Further, cash flow and earnings per share will be accretive from the first full fiscal year following completion (after adjusting for the proposed share buyback and excluding depreciation on the write-up of Rio Tinto's assets)," said the company.
A formal offer is likely to be made to Rio Tinto shareholder in the second quarter of this year because BHP's bid is conditional on getting anti-trust clearance from the EU, US, Canada, South Africa and further clearance from Australian regulators.
“We believe any regulatory concerns could be addressed without meaningfully impacting the benefit of this combination," said Kloppers.
If
the two companies merge the new group would be a diversified resources giant. It would dominate iron ore and thermal coal trade and would be one of the market leaders in aluminium and copper.
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