Melbourne: Investors are betting global miner Rio Tinto will settle for a minority stake in Africa-focused Riversdale Mining after its A$3.9 billion ($4 billion) takeover bid failed to secure control of the firm just hours away from the offer deadline.
As of early Monday, Rio Tinto had just under 40% of the Australia-listed coal miner, with no sign of Riversdale’s two key shareholders, India’s Tata Steel and Brazil’s CSN, selling any of the 47% stake they hold.
With the two steel-makers sitting tight, investors speculated that Rio Tinto would not walk away, and instead drop the 50% condition on its sweetened offer of A$16.50 a share and leave the offer open a bit longer.
“It’s going to be a tough ask to get to 50% in the next 24 hours, so they may roll the dice and go unconditional in the hope that they get plus-50, which doesn’t look as though it’s going to eventuate today,” said Tim Schroeders, a portfolio manager at Pengana Capital, which owns shares in Rio Tinto.
If Rio Tinto goes unconditional, Riversdale’s weighting in the benchmark S&P/ASX 200 index would be cut, which would prompt passive fund managers to tip in a further 6-7%, fund managers said. Passive fund managers track indices by matching their holdings to index weightings.
Riversdale shareholders were to receive A$16.50 a share if Rio Tinto reached more than 50% acceptances by 01:30 pm on Monday. Otherwise the offer was due to revert to A$16 a share, remaining open until 6 April.
Riversdale’s shares were trading roughly unchanged on Monday, at A$16.14, above the value of the original bid, indicating investors expect Rio Tinto to go ahead with the sweetened offer whether it gets to 50% or not.
One potential outcome is that Rio Tinto gains just over 50% control and buys out Tata and CSN’s stakes in Riversdale at a later date, potentially at a lower price than the current offer if coal prices fall, sources familiar with the deal say.
Schroeders said ideally Rio Tinto would want to have at least 50% to put it in a stronger position to dictate decisions on capital spending and the timing of developments on Riversdale’s Benga and Zambeze coking coal projects.
Tata and CSN could also tip in some of their shareholding to get Rio Tinto across the line, sources said, although this was a last-resort option as they did not want to lose their bargaining power.
Riversdale chief executive Steve Mallyon told Reuters this month the company would need to raise A$3 billion just to fund the first stage of the Zambeze project, if Rio walks away.
Rio Tinto was likely to make an announcement to the market on the offer early Tuesday, sources added.