Rio Tinto Shares Buoyed By BHP Billiton Speculation
March 27 2009 - 12:11PM
Dow Jones News
Rio Tinto PLC (RTP) shares Friday afternoon outperformed peers
on continuing speculation that rival BHP Billiton Ltd. (BHP) could
reemerge as a suitor in an effort to merge the Anglo-Australian
miners.
"We feel there have been big changes since BHP Billiton walked
from Rio Tinto last year and that the stars are now aligning for it
to be able reach an agreed bid," Liberum Capital analyst Michael
Rawlinson said in a note.
At 1539 GMT, Rio shares were up 93 pence, or 3.9%, at 2,474
pence, making it the best performing FTSE100 miner in a broadly
weaker sector. The FTSE350 mining index was down 0.9%.
Rio Tinto last year spurned a takeover proposal from BHP
offering 3.4 BHP shares for each Rio share. BHP in November walked
away from that hostile bid, citing its rival's heavy debt and a
sharp downturn in commodity markets.
Rawlinson said a new all-share offer at a ratio of about
2.5-to-1 would make sense for shareholders at both miners.
Spokesmen for BHP and Rio Tinto declined to comment on
speculation surrounding a merger between the companies.
Renewed market interest in a merger emerged this week after Rio
Tinto softened its tone on a proposed $19.5 billion investment from
Aluminum Corp. of China, or Chinalco. Chief Financial Officer Guy
Elliott said Rio has a "plan B" in place if the Chinalco investment
faltered. The company also has a new chairman-elect, Jan du
Plessis, sparking hope that the board could revisit the BHP
deal.
Meanwhile, BHP in recent days has raised almost $5 billion in
bond markets, fueling speculation it is ready to make an
acquisition or to revisit its Rio bid.
"Rio ... is still the best deal for BHP in our view but BHP is
not without options," said a trader who asked not to be named.
Speculation has focused on acquisitions of potash, petroleum and
iron ore producers.
The trader said BHP also would be interested in scuttling the
Rio-Chinalco deal because it could put BHP at a competitive
disadvantage in the Chinese market.
Rio earlier this year turned to Chinalco to help pay down about
$38.7 billion in debt. Chinalco is set to invest $12.3 billion in
minority stakes in a suite of Rio's iron ore, copper and aluminum
assets. And it would buy $7.2 billion in convertible bonds that
could increase its stake to 18% from around 9%.
Rio Tinto's management maintains that the investment is the best
option for company. But it has met with intense shareholder
opposition and potential regulatory hurdles.
BHP would also face regulatory issues to a renewed bid. It is
prohibited by U.K. takeover law from launching a new offer for Rio
until November, though the two sides could reach an agreed deal.
European competition concerns also could hinder a deal.
Canaccord Adams analyst Damien Hackett said both Rio and BHP now
know the terms of the objections raised by the European Commission
and could structure a deal accordingly.
"It is worth remembering that the first all-share offer by BHP
Billiton of 3 for 1 would translate today to GBP42/share for Rio
Tinto. And, although we recognize the investment environment has
changed a lot since then, we note it has changed for both. And the
businesses are very similar," Hackett said in a note.
Company Web site: www.riotinto.com
-By Jeffrey Sparshott, Dow Jones Newswires; +44 (0)207 842 9347;
jeffrey.sparshott@dowjones.com
(Kimberly Vlach contributed to this article.)