Sydney: Rio Tinto rejected a sweetened formal takeover bid from mining rival BHP Billiton, saying the all-share offer worth $147.4 billion still does not reflect the value of the company and its expansion prospects.
Rio Tinto, which had already rejected an initial approach from BHP Billiton last year as too low, said its boards were unanimous in turning away an offer that would create the dominant global player in iron ore.
“BHP Billiton’s offers, while improved, still fail to recognize the underlying value of Rio Tinto’s quality assets and prospects,” Rio Tinto Chairman Paul Skinner said Wednesday. “Our plans are unchanged, and will remain so unless a proposal is made that fully reflects the value of Rio Tinto.”
BHP Billiton is already the world’s largest diversified mining company, and Rio Tinto is the third-largest. Analysts say that if the deal succeeds it would be the biggest takeover in the mining sector and one of the biggest ever in the corporate world.
Steelmakers in China, Japan and Europe have protested BHP Billiton’s bid, contending that a takeover would give it too much influence over global iron ore supplies and pricing. BHP Billiton accounts for around 15% of world iron ore sales, while Rio Tinto is responsible for 24%, which would put the combined company at 39%.
BHP Billiton, which also reported a 2.4% drop in six-month net profit on Wednesday, is offering 3.4 of its shares for every one Rio Tinto share, an increase from the initial informal proposal of three-for-one, the Melbourne-based company said. The offer applies to both Australian-listed Rio Tinto Ltd and British-listed Rio Tinto PLC.
The proposed deal would deliver efficiency benefits worth $3.7 billion a year and raise the value of shareholdings in both companies, said BHP Billiton CEO Marius Kloppers, underscoring what he called the plan’s “compelling logic.”
Under the current terms, Rio Tinto would hold 44% of the new company, more than the 36% of the merged group BHP Billiton made in its earlier offer.
The offer, and Rio Tinto’s reaction, sent shares in both companies lower.
In Australia on Thursday, Rio Tinto’s shares dropped as much as 2.5% to 124 Australian dollars, after slipping slightly a day earlier. BHP Billiton’s shares fell as much as 1.6% to36.07 Australian dollars in early trade, although they later recovered to trade in positive territory.
BHP Billiton is likely to discuss its sweetened offer with state-owned Aluminum Corp. of China, and Pittsburgh-based Alcoa Inc., which last week bought a 12% stake in Rio Tinto’s London-listed stock — about 9% of the whole group.
“At some stage, we’re likely to have a discussion,” Kloppers said in a conference call, though he also said BHP Billiton could proceed with its offer without the support of the new stake holders.
Xiao Yaqing, the president of the Chinese company, known as Chinalco, has said his company and Alcoa had no intention of raising their stake in Rio Tinto but have reserved the right to participate in a takeover offer within six months.
He suggested Chinalco might be prepared to sell its stake in Rio Tinto as part of a BHP bid “if the return is attractive.”
Alcoa and Chinalco said through Singapore-based Shining Prospect they would “closely monitor” bid developments.