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6 February
Melbourne,
Dow Jones
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MELBOURNE -(Dow Jones)- BHP Billiton Ltd. (BHP.AU) Wednesday sweetened its offer for mining giant Rio Tinto Ltd. (RTP) with a bid it said values its rival at US$147.7 billion, an offer analysts said could be enough to bring Rio Tinto to the negotiating table. BHP is offering 3.4 of its shares for every one Rio Tinto share, an increase from its initial and informal proposal of a three-for-one, all-share takeover. The new offer values each Rio share at around GBP54.30 or A$124.64 based on closing prices. Rio Tinto closed down 0.2% at A$127.14 on the Australian Stock Exchange Wednesday and ended down 1.7% at GBP54.34 in London on Tuesday. If the deal goes ahead it will be the second biggest takeover ever and the largest yet in a rapidly consolidating mining industry, creating a dominant mining house worth about US$336 billion with a leading position in iron ore, copper and aluminum. Rio Tinto, which had refused to enter into talks with BHP on its original proposal, said Wednesday it would "carefully consider" the terms of the formal offer and asked shareholders not to take any action. BHP said its offer represents a 45% premium to Rio Tinto’s share price prior to its approach last year, valuing Rio Tinto at US$147.4 billion based on the closing share price of Feb. 4 and at US$173.6 billion based on the pre-approach closing price on Oct. 31. The combined entity’s dominant position in key commodities has sparked concerns among customers in China over its potential pricing power, and is likely to draw scrutiny from competition regulators. BHP Chief Executive Marius Kloppers, however, said the miner could have the necessary approvals complete by the second half of this year. "Following detailed analysis, we believe that any regulatory concerns can be addressed without meaningfully impacting the benefits of the combination," he said. Under U. K. takeover regulations, BHP had until Wednesday to formalize its offer or walk away for six months. Up until last week, the market had been expecting BHP to formalize its three-for-one offer, but that changed Friday when Aluminum Corp. of China and Alcoa Inc. (AA) revealed they had paid a 21% premium to market price for a 12% stake in Rio Tinto’s London-listed stock, equating to 9% of the whole group. The pair said at the time they didn’t plan to make an offer for Rio Tinto but would reconsider that position if BHP increased its bid. Chinalco President Xiao Yaqing said Monday that the company has no plans to increase its stake in Rio Tinto, and even dangled the possibility of selling its holding to BHP in the unlikely event of its rival offering a premium to the GBP60 a share the Chinese giant paid for its stake. An Australia-based spokesman for the Chinese group Wednesday said its position has not changed since it first announced its intentions, dismissing a report in The Times of London that it has already requested permission from Australian regulators to increase its stake to 19.9% — the maximum permitted before an investor has to declare its intentions — and is preparing to launch a counter offer. Chinalco has already confirmed it made a voluntary approach to Australia’s Foreign Investment Review Board but would not provide details. The FIRB would not comment. "The announcement makes it clear that Chinalco is not currently intending to make an offer for the whole of Rio Tinto, nor is it proposing to take a seat on the board or to become involved in the management of Rio Tinto," the spokesman told Dow Jones Newswires. While BHP had previously said it would be patient and appeared to be readying itself for a long game of cat and mouse with its target, the prospect of other players disrupting the deal looks to have prompted it to act more decisively. "It’s (the new offer) a good starting point, it should get Rio to the negotiating table," said Rob Patterson, managing director of Argo Investments, which holds both BHP and Rio shares. However, the lack of any cash component to the offer is still seen as a stumbling block to winning over shareholders. "BHP’s sweetened the offer in terms of a scrip bid but it hasn’t provided any cash," said Ian Huntley, a fund manager at Huntley Investments in Sydney, who holds both Rio and BHP stock. "There is nothing stopping BHP from offering cash. Cash is lovely stuff and not dependent on paper" or commodity prices, he added. Rio Tinto Chairman Paul Skinner told shareholders to take no action for now. "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," he said in a statement. Alcoa said it would examine the offer. "We’ve just seen it and we’ll get together with our partners and respond appropriately," an Alcoa spokesman said. "We’re just in the process of going through it."
Pressed on whether the bid was final or if there was the prospect it could be raised, Kloppers would only say that the current bid was BHP’s "first and only" offer. BHP said its offer is based on the information available to it, and ABN Amro analyst Warren Edney said the predator is signaling to the Rio Tinto board that they will have to engage if they want to try to elicit a higher bid. "If they do enter into discussions, then that opens the way to, if not due diligence then at least some sharing of information and a better understanding of potential synergy gains, which therefore leaves the way open to increase the offer," he said. Adding weight to its new offer, BHP said it has already secured a committed bank financing facility of US$55 billion. The offer has a minimum acceptance condition of 50%, with Rio to hold 44% of the merged entity. The terms of BHP’s previous approach on Nov. 8 would have given Rio Tinto shareholders control of 36% of the merged group. If BHP’s offer is successful, the miner said it will return up to US$30 billion to shareholders through a share buyback. Kloppers said investors understood the logic of the deal, which would unlock benefits worth US$3.7 billion a year otherwise unavailable to both sets of shareholders. The South African also said he was heartened to hear Rio Tinto would look at the proposal, but stressed that BHP would press on with an unrecommended bid regardless and expected a positive response from Rio Tinto shareholders. "We are very confident that they are going to find this a very unique and a very compelling proposition," he told reporters in Sydney. The dual listed structures of the two companies, which both have shares in Australia and London, would make proceeding without Rio Tinto’s cooperation difficult and Kloppers said the current bid can be altered to become an easier scheme of arrangement if Rio Tinto’s board approves the deal. Australian Resources & Energy Minister Martin Ferguson said that normal antitrust regulations will apply to BHP’s bid but appeared to welcome the prospect of a merged entity. "If the BHP/Rio bid proceeds it will have to be properly considered by the Treasurer (Wayne Swan), through the normal regulatory requirements, but the end result could be that Australia has one of the biggest mining houses in the world and that would be good for Australia," Ferguson told Dow Jones Newswires Wednesday. Banks involved in BHP’s financing include Barclays Capital, BNP Paribas, Citigroup Global Markets Limited, Goldman Sachs International, HSBC Bank Plc, Banco Santander S. A., and UBS Ltd. BHP also Wednesday announced a half year net profit of US$6.02 billion, down 2.4% on the US$6.2 billion it posted a a year earlier as increased production and prices were eroded by higher taxes and a weaker U.S. dollar. Revenue for the half was US$25.54 billion, up 16% from US$22.1 billion in the same period the previous fiscal year. Underlying profit excluding exceptional items — a measure closely watched by investors and analysts — was US$6.0 billion, slightly less than market forecasts of around US$6.1 billion. ABN’s Edney said the profit was slightly weaker than expected but that this would have little bearing on the miner’s takeover bid for Rio Tinto. BHP shares ended sharply lower in weaker Australian trade Wednesday, taking the ratio between the two stocks to 3.5 BHP shares to one Rio Tinto share. BHP closed down 7.5% at A$36.66 in a market down 3.2%. | |||