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11 February, 2008
BHP Billiton’s hostile bid for mining rival Rio Tinto escalated last week, just prior to a 6 February deadline by the UK Takeover Panel to either increase a November 2007 bid or walk away from the takeover for a period of six months. BHP Billiton increased its share-swap offer by 13%, offering 3.4 shares of BHP stock for one Rio Tinto share.
In November, BHP offered a three-to-one share swap, meaning the price of the takeover would be US$120 billion. This latest unsolicited bid raised that price to US$147 billion. If successful, the combined company would dominate world production and sales of bauxite, coal, copper, diamonds, lead, silver, titanium, and uranium. It would also rank a high second, behind Brazilian Vale, in iron ore output, but would control vital markets of Australian ore destined for China.
The proposed takeover would represent the world’s second biggest corporate takeover. Only Vodafones’s US$172 billion buy-up of Mannesmann in the year 2000 surpasses BHP’s current bid to Rio Tinto shareholders. Rio Tinto executives said the latest offer still undervalues the assets of the Australian- and UK-based company.
BHP was pressed to increase its offer following a 1 February purchase of some US$14 billion of Rio’s London-traded shares by Aluminium Corp. of China (Chinalco), a state-run mining company. Chinalco put up US$12.8 billion, while US-based Alcoa put in US$1.2 billion. Together, they now own 9% of Rio Tinto, and the share price paid increased the valuation of Rio Tinto by 23%. The premium share purchase was seen as a blocking move by Chinalco that is sure to complicate a further, enhanced bid by BHP Billiton.
According to Sweden’s Raw Materials Group, a combined BHP Billiton/Rio Tinto would control a full 17% of world production of mined resources. If constituted under the latest bid, Rio Tinto shareholders would hold 44% of the combined company, an increase from the 36% under terms of the offer posed in early November.