Rio Tinto Not Courting Rival Bidders

MELBOURNE -(Dow Jones)- Rio Tinto Ltd. (RTP) isn’t courting rival bidders to face off against BHP Billiton Ltd. (BHP.AU), but is unwilling to enter discussions with BHP unless it increases its offer, a person familiar with the situation said Tuesday.

BHP Tuesday began selling to institutional investors its takeover proposal for Rio Tinto as it tries to ramp up pressure on its rival to come to the negotiating table. BHP values the proposal at US$153.2 billion, based on closing prices on Oct. 31.

There is a stand off between the two mining giants over the three-for-one share offer, with Rio Tinto Tuesday restating its position that the deal undervalues the company.

A person familiar with the situation said Rio Tinto wouldn’t enter into any discussions with BHP based on the current proposal, but that the miner has not dismissed the idea of bringing the two companies together out of hand.

"If they want to put the price up I am sure the board will listen," the person said.

The person said Rio Tinto isn’t soliciting for rival bids and it is hard to see any suitors that would be willing to launch a battle with BHP Billiton or able to offer the same capital gains tax rollover relief.

BHP Chief Executive Marius Kloppers laid out the rationale for the takeover in media and analyst briefings overnight, and a person familiar with the deal said briefings with Rio Tinto shareholders are beginning in earnest Tuesday.

The mining giant made it clear it was releasing the detail of its offer so that it could seek support from shareholders for its push to bring Rio Tinto to the negotiating table.

Analysts are pondering the potential for rival suitors, with Brazil’s Companhia Vale do Rio Doce (RIO), Anglo American PLC (AAL.LN) and state-backed Chinese entities being touted as possibilities.

Fat Prophets analyst Gavin Wendt said a merger between Rio Tinto and Anglo American could make sense, even if it did not offer the same synergies as a deal with BHP.

"It could be a complimentary tie up and one that would have a lot of merit," he said.

However, Fat Prophets director and mining analyst Stephen Bartrop said a merger with Anglo American would deliver little to Rio Tinto.

"We would always view that Rio has better quality assets than Anglo so you end up diluting your asset quality," he said.

Bartrop said that, while CVRD has the financial muscle to make a bid and would be keen to protect its position as the world’s biggest iron ore producer, an offer from the Brazilian giant would face regulatory hurdles given the dominant position the combined group would have in iron ore.

Analysts said a bid from a Chinese entity remains a possibility but that any such deal could spark national interest concerns, like the China National Offshore Oil Corp. bid for Unocal Corp. in 2005.

With Kloppers highlighting the synergies of bringing BHP and Rio Tinto’s iron ore operations in Western Australia together, authorities in the state are now assessing what the deal could mean for the state agreements that govern both miner’s operations.

Treasurer Eric Ripper is receiving advice on the legislation and Premier Alan Carpenter has said the deal is of great interest to the state.

"The State Government has a healthy relationship with both companies but at this preliminary stage this is a matter for the companies and their respective shareholders," he said.

Some in the Western Australian Opposition believe the government should be able to rewrite Rio Tinto’s state agreement before passing it to BHP, inserting clauses that would ensure the massive iron ore resource is developed in the long-term interests of the state.

However, Western Australian analysts said they believed the agreements would be passed to the new owner of Rio Tinto’s operations unchanged.

Australian Treasurer Peter Costello said that any formal offer by BHP for Rio Tinto "would have to clear competition hurdles" and would have to satisfy Australia’s policy that BHP is headquartered in Australia.

Rio Tinto closed down 0.5% at A$139 Tuesday while BHP ended up 0.2% at A$41.80, valuing its proposed offer at A$125.40 per Rio Tinto share for holders of the Australian listed stock.