Post by texastommy on Nov 8, 2007 7:32:46 GMT -6
BHP Billiton offers to buy Rio Tinto; Rio says no
Rio rejects early overtures, says offer significantly undervalues prospects
By Sarah Turner, MarketWatch
Last Update: 8:02 AM ET Nov 8, 2007
LONDON (MarketWatch) -- Top global miner BHP Billiton said Thursday it had approached Rio Tinto with an offer to buy the company in a deal that could be worth more than $110 billion, though its smaller rival quickly rejected any such combination.
A deal between the two Anglo-Australian miners would create the world's largest mining company by a wide margin, producing vast amounts of iron ore, aluminum, copper and other metals.
Shares of London-headquartered Rio Tinto (RTPrio tinto plc sponsored adr
RTP) (UK:RIO: news, chart, profile) vaulted 27.5% at 5,546 pence in the U.K. after the news, just off a high of 5,638 pence reach earlier in the session. The shares have not traded at this level for at least ten years. Rio Tinto has a market capitalization of about $112 billion at current prices. See London Markets.
At Wednesday closing prices, Melbourne-headquartered BHP Billiton's offer was worth around 52.3 billion pounds ($110.1 billion).
The gains followed a statement by BHP Billiton (UK:BLT: news, chart, profile) (BHPBHP Billiton Ltd
BHP) to the London Stock Exchange that it recently wrote to the board of Rio Tinto outlining a proposal for a "potential combination."
Such a deal would incorporate a premium, BHP Billiton said, to reflect its confidence in the benefits of a transaction for both sets of shareholders.
BHP shares edged down 0.4% in London, while other miners including Antohagasta (UK:ANTO: news, chart, profile) , Lonmin (UK:LMI: news, chart, profile) and Anglo American (UK:AAL: news, chart, profile) rallied more than 7.1%.
Rio's rebuff
Rio Tinto rejected the all-share offer, which it said would be made on the basis of three BHP Billiton shares for each Rio Tinto share. Rio said the proposal significantly undervalued its prospects.
"Rio Tinto will continue to focus on the implementation of its well-articulated strategy, including integrating Alcan (ALAlcan Inc
AL) operations," Rio said in its own statement to the London Stock Exchange.
However, BHP said it would keep trying to convince Rio Tinto on the merits of a deal.
It has written again to Rio Tinto to discuss the proposal and "intends to continue to seek an opportunity to meet and discuss its proposal with Rio Tinto."
BHP Billiton added a note of caution into the situation, however, saying: "There can be no assurances that any transaction of offer will result from BHP Billiton's proposal."
One of the main stumbling blocks for any deal would be competition approval.
John Meyer, a mining analyst at Fairfax IS, said that iron-ore operations are likely to be the real focus of any transaction.
"I can't really see what the real rationale for a deal is unless competition authorities will let them merge their iron-ore operations," he said. The ore operation is one of the most profitable parts of its business, along with copper, Myer said.
However, Meyer said he believes this is an unlikely scenario because BHP Billiton and Rio Tinto are two of the top three iron-ore producers in a relatively small market.
Still BHP Billiton appeared sanguine about potential competition issues.
"In preparing its proposal, BHP Billiton has examined in detail the regulatory issues and other practicalities of a combination," the company said.
Metal prices near highs
The proposal was made at a time when prices for metals are trading near multiyear highs and companies are scrabbling for market share. See more markets coverage.
Speculation that Rio Tinto could be a buyout target has been rife in recent years, with the most recent talk in September centering on a takeover of the firm by both BHP Billiton and Brazil's CVRD (RIOcompanhia vale do rio doce sponsored adr
News, chart, profile, more
RIO) .
The speculation died down briefly earlier in the year when Rio won the battle for control of aluminum producer Alcan, though it soon resurfaced in a sector full of M&A chatter.
"It is likely that there will be ongoing consolidation," said Meyer.
Sarah Turner is a markets reporter for MarketWatch in London.
Rio rejects early overtures, says offer significantly undervalues prospects
By Sarah Turner, MarketWatch
Last Update: 8:02 AM ET Nov 8, 2007
LONDON (MarketWatch) -- Top global miner BHP Billiton said Thursday it had approached Rio Tinto with an offer to buy the company in a deal that could be worth more than $110 billion, though its smaller rival quickly rejected any such combination.
A deal between the two Anglo-Australian miners would create the world's largest mining company by a wide margin, producing vast amounts of iron ore, aluminum, copper and other metals.
Shares of London-headquartered Rio Tinto (RTPrio tinto plc sponsored adr
RTP) (UK:RIO: news, chart, profile) vaulted 27.5% at 5,546 pence in the U.K. after the news, just off a high of 5,638 pence reach earlier in the session. The shares have not traded at this level for at least ten years. Rio Tinto has a market capitalization of about $112 billion at current prices. See London Markets.
At Wednesday closing prices, Melbourne-headquartered BHP Billiton's offer was worth around 52.3 billion pounds ($110.1 billion).
The gains followed a statement by BHP Billiton (UK:BLT: news, chart, profile) (BHPBHP Billiton Ltd
BHP) to the London Stock Exchange that it recently wrote to the board of Rio Tinto outlining a proposal for a "potential combination."
Such a deal would incorporate a premium, BHP Billiton said, to reflect its confidence in the benefits of a transaction for both sets of shareholders.
BHP shares edged down 0.4% in London, while other miners including Antohagasta (UK:ANTO: news, chart, profile) , Lonmin (UK:LMI: news, chart, profile) and Anglo American (UK:AAL: news, chart, profile) rallied more than 7.1%.
Rio's rebuff
Rio Tinto rejected the all-share offer, which it said would be made on the basis of three BHP Billiton shares for each Rio Tinto share. Rio said the proposal significantly undervalued its prospects.
"Rio Tinto will continue to focus on the implementation of its well-articulated strategy, including integrating Alcan (ALAlcan Inc
AL) operations," Rio said in its own statement to the London Stock Exchange.
However, BHP said it would keep trying to convince Rio Tinto on the merits of a deal.
It has written again to Rio Tinto to discuss the proposal and "intends to continue to seek an opportunity to meet and discuss its proposal with Rio Tinto."
BHP Billiton added a note of caution into the situation, however, saying: "There can be no assurances that any transaction of offer will result from BHP Billiton's proposal."
One of the main stumbling blocks for any deal would be competition approval.
John Meyer, a mining analyst at Fairfax IS, said that iron-ore operations are likely to be the real focus of any transaction.
"I can't really see what the real rationale for a deal is unless competition authorities will let them merge their iron-ore operations," he said. The ore operation is one of the most profitable parts of its business, along with copper, Myer said.
However, Meyer said he believes this is an unlikely scenario because BHP Billiton and Rio Tinto are two of the top three iron-ore producers in a relatively small market.
Still BHP Billiton appeared sanguine about potential competition issues.
"In preparing its proposal, BHP Billiton has examined in detail the regulatory issues and other practicalities of a combination," the company said.
Metal prices near highs
The proposal was made at a time when prices for metals are trading near multiyear highs and companies are scrabbling for market share. See more markets coverage.
Speculation that Rio Tinto could be a buyout target has been rife in recent years, with the most recent talk in September centering on a takeover of the firm by both BHP Billiton and Brazil's CVRD (RIOcompanhia vale do rio doce sponsored adr
News, chart, profile, more
RIO) .
The speculation died down briefly earlier in the year when Rio won the battle for control of aluminum producer Alcan, though it soon resurfaced in a sector full of M&A chatter.
"It is likely that there will be ongoing consolidation," said Meyer.
Sarah Turner is a markets reporter for MarketWatch in London.