BHP Billiton CEO: Rio Bid Is «A Friendly Proposal«- I-Net

JOHANNESBURG (I-Net Bridge)-Global resource giant BHP Billiton’s (BIL) $153 billion all share merger proposal for Rio Tinto (RIO) is a "friendly proposal" and the group is continuing to engage the Rio Tinto board to combine the two companies to create a new company, Chief Executive Marius Kloppers said Saturday.

"That is the nature of the proposal," Kloppers told journalists in Johannesburg.

Stressing that BHP Billiton has not made a formal offer for Rio Tinto and had just put forward a proposal, he said he was hoping to get the Rio Tinto board to the table to talk to them.

Kloppers said the group has been interacting with shareholders in the UK, Australia and South Africa, discussing the proposal which he says is "a compelling one."

He reiterated that the two groups' assets fit together well, pointing to the large synergies to be derived from combining the companies as well as their similar strategies.

"We believe that the proposal will unlock a lot of things that are very do-able and they fit together very well," he said. "We believe it is a good proposal and an opportunity to create value for both sets of shareholders," he added.

Kloppers added that BHP Billiton wants the two sets of shareholders to continue to be investors in the merged entity and that he was going to both sets of shareholders for their input.

He added that the market has accepted the premium that BHP Billiton has offered for Rio Tinto. "The market has priced in a high probability of this deal being consummated and that is why the share price has moved," he said.

He said that the world is experiencing a shortage of raw materials because of the pace of industrialization in China, the surrounding countries and India. Delivering more product more quickly is important to grow the overall value of the company as well as serve customers better.

He said he would continue to get feedback from the market and from shareholders of the two companies and continue to seek to engage with the Board of Rio Tinto in order to talk to them about the combination.

He added that BHP Billiton had approached Rio Tinto on two occasions in the recent past, but had "not had the opportunity to engage with the Rio Tinto Board."

He said the combination of the two companies had been explored for about a decade.

Kloppers refused to speculate as to why Rio Tinto had rejected the offer, saying he had not been able to talk to them, only to their shareholders.

Rio Tinto rejected BHP Billiton’s advances, saying the three BHP Billiton shares for every one Rio Tinto share proposal "significantly undervalues Rio Tinto and its prospects".

"We are talking to shareholders directly to ask management to do something. This is the only proposal on the able," he said.

"We are hopeful that management will engage with us," he said.

"Shareholders own the company, not management. Shareholders will tell the management what they want them to do. We want the shareholders to get the Rio Tinto board to the table."

He reiterated that the proposal was a "shareholder value making proposal of proportions that this industry has not yet seen". There is a larger pool of value to unlock in this deal, he said.

Earlier this week BHP Billiton, which was created out of the merger of Australia’s BHP and South Africa’s Billiton in 2001, set out what it believes is a "logical and compelling" argument for the combination of the two mining majors.

Besides the 28% premium presented by the three for one share all-scrip offer, Rio Tinto shareholders would end up holding 41% of the combined group and therefore be guaranteed continued participation in the merged entity’s future growth.

BHP Billiton has thrown in a $30 billion share buy-back into the offer in an attempt to seal the deal.

The merger is expected to produce at least $3.7 billion in cost savings and earnings increases, among them $1.7 billion in annual cost savings in the third year after completion and further earnings enhancement of $2 billion a year in the seventh full year, driven by the acceleration of volumes to customers.

Total one-time implementation costs of the deal, which would be the biggest ever in the mining sector, would be $650 million over the first two years after completion.