UPDATE: Scots Widows: Rio Tinto-Chinalco Deal Overrides Rts
February 12 2009 - 11:58AM
Dow Jones News
Pension fund Scottish Widows Investment Partnership Thursday
said Rio Tinto PLC's (RTP) proposed $19.5 billion deal with
Aluminum Corp.of China overrides its rights to buy into new shares
the company will issue.
"We are very disappointed that Rio Tinto has decided to override
our clients' preemption rights and issue attractive equity to one
shareholder without offering it to all shareholders," said Robert
Waugh, head of U.K. equities at Scottish Widows Investment
Partnership.
"We will be engaging with the board with a view to protecting
our clients' interests," Waugh said.
Rio Tinto Thursday revealed a deal with Aluminum Corp. of China
that will give the Chinese group minority stakes in a suite of
assets for $12.3 billion and convertible bonds valued at $7.2
billion, which could ultimately deliver an 18% stake in the
miner.
The arrangement has irked some shareholders concerned that their
stake in the miner will be diluted as Chinalco gains. Some had
preferred a broader rights issue open to all investors.
"Relationships with shareholders will be strained by this (deal)
- they are in effect being asked to 'back or sack' a management
still under scrutiny from the mistake that was the Alcan purchase,"
Liberum Capital analyst Michael Rawlinson said in a note to
clients.
"We feel shareholders rightly or wrongly would have preferred
the slower diplomacy of a rights issue," Rawlinson added.
Rio took on $40 billion in debt to fund the purchase of Canadian
aluminum company Alcan in October 2007. The deal with Chinalco is
meant to wipe out a portion of that burden.
Rio Tinto Chairman Paul Skinner Thursday said the deal offers
superior value to shareholders and would advance the miner's
capability in the Chinese market.
"Chinalco's cash investment of US$19.5 billion will strengthen
Rio Tinto's balance sheet, increase our flexibility to deliver
growth as markets recover and position Rio Tinto for the next
decade and beyond," he said.
Rio Tinto shareholders, in the U.K. and Australia, are likely to
vote on the deal some time in May. A simple majority vote is
necessary.
Scottish Widows Thursday said it holds roughly 8 million Rio
Tinto shares, or less than 1% of the company, valued at about
GBP157.7 million.
Company Web site: www.swip.com
-By Jeffrey Sparshott, Dow Jones Newswires; +44 (0)207 842 9347;
jeffrey.sparshott@dowjones.com