Rio Tinto Rejects BHP Billiton’s $147.4 Billion Offer

LONDON -(Dow Jones)- Rio Tinto PLC (RTP) Wednesday rejected BHP Billiton Ltd.'s (BHP) $147.4 billion hostile takeover offer, saying it significantly undervalues Rio Tinto and provides no basis for negotiations between the companies.

BHP Billiton earlier in the day offered 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.

"BHP Billiton’s offers, while improved, still fail to recognize the underlying value of Rio Tinto’s quality assets and prospects. Our plans are unchanged, and will remain so unless a proposal is made that fully reflects the value of Rio Tinto," Rio Tinto Chairman Paul Skinner said in a statement.

A Rio Tinto spokesman added that BHP Billiton’s latest offer didn’t open the door to negotiations.

"Based on the offer of 3.4, there is nothing to discuss there," the spokesman said.

A BHP Billiton spokesman said the offer would remain on the table for consideration by Rio Tinto’s shareholders.

"We have always sought the engagement of the Rio Tinto board, and due to the fact that we haven’t managed to achieve this we have put our offer directly to the shareholders of Rio Tinto," the spokesman said.

The rejection wasn’t unexpected, analysts said.

BHP Billiton can now sit back and let the regulatory process unfold before presenting its current offer, or an improved one, to Rio Tinto shareholders, said Numis Securities analyst Simon Toyne.

"I think it’s going to be quite quiet for some time," he said.

BHP Billiton said the regulatory process is expected to take at least until the second half of the year.

Charles Stanley analyst Tom Gidley-Kitchin said he believes the transaction will be completed, but not for less than 6,000 pence a share.

"The Rio board’s estimation of its worth would be some way ahead of this, but they may find themselves deserted by their shareholders," he said in a research note.

Rio Tinto Nov. 8 rejected BHP Billiton’s proposed three-shares-for-one bid from BHP Billiton as too cheap.

In the meantime, China entered the picture.

Friday, Aluminum Corp of China, or Chinalco, and U.S. aluminum producer Alcoa Inc. (AA) snapped up 12% of Rio Tinto’s London-listed shares, or about 9% of the Anglo-Australian group.

Chinalco paid 6,000 pence a share for its Rio Tinto stake, compared with BHP Billiton’s offer at 5,430 pence a share at Tuesday’s closing price.

Chinalco may complicate BHP Billiton’s goal of acquiring 100% of Rio Tinto.

A BHP Billiton-Rio Tinto combination would create a global force in iron ore, metallurgical coal, aluminum, copper, uranium and other commodities.

BHP Billiton shares closed down 4.8%, or 77 pence, at 1,520 pence, making it the worst performer among FTSE 100 miners. Rio Tinto was 0.3%, or 17 pence, lower at 5,417 pence, in line with other miners.

The FTSE 350 mining index closed down 0.7%.