Sydney: Rio Tinto has offered $3.9 billion to buy Australian-listed coal miner Riversdale in an agreed deal to give the Anglo-Australian mining giant access to African coking coal deposits as demand for the commodity from Asia soars.
Rio raised its offer to A$16 per share cash but Riversdale shares rose as high as A$16.84 when the stock resumed trading, indicating investors were expecting a higher offer from a rival party.
A group of state-run Indian firms has said it is looking at Riversdale, while sources familiar with the matter have said other interested parties include Anglo American, ArcelorMittal and Xstrata .
“I think there is a strong potential (for rival bids). There aren’t that many big new coking coal assets out there and this one is very large and it’s near to production,” said Andrew Harrington, an analyst at Patersons Securities in Sydney.
A deal would be Rio’s first major acquisition since it bought Canadian aluminium maker Alcan in 2007.
The miner needs acceptances from 50% of Riversdale shareholders which would require getting on board at least one of the target’s big shareholders -- India’s Tata Steel, Brazilian steel group CSN and US fund Passport Capital, which together own about half of the company, according to Reuters data.
“I think Tata will be reluctant to be bought out, having been a long-term believer, just as it’s entering into production,” Patersons’ Harrington said.
Rio said it had also entered into pre-bid agreements to buy 14.9% of Riversdale shares, including from Riversdale’s executive chairman and founder Michael O’Keeffe and managing director Steve Mallyon.
Riversdale owns valuable coking coal assets in Mozambique which Rio said was in line with its strategy of developing large, long-life, low cost assets.
Surging demand, Soaring prices
Riversdale may eventually supply 5-10% of the global market for the key steel-making material, analysts say.
Rio’s A$16 per share bid comes just below Riversdale’s last trading price of A$16.30 before trade was halted on Tuesday ahead of the announcement. Riversdale shares were 2.1% firmer at A$16.65 shortly after resuming after trading on Thursday, while Rio shares were 1.1% higher at A$87.72, outperforming the broader market .
Rio said the offer was at a 46% premium to the one-month volume weighted average price of Riversdale shares up until 3 November.
Riversdale shares have risen more than 130% this year, helped by takeover hopes and riding a boom in commodity prices fuelled by soaring demand in China and India in particular.
A successful bid would cap off a boom year for mergers and acquisitions involving Australian-listed firms. Another coal miner Whitehaven Coal has also invited interested bidders to conduct due diligence on the company.
For Rio, it is back on the acquisition trail after the global economic downturn froze its expansion plans. It took on $40 billion in debt to buy Canadian aluminium maker Alcan in 2007 and was forced to sell assets and new equity to lower its gearing.
Last month, the mining company said it was set to nearly triple capital spending, to $11 billion in 2011.
The deal is also a coup for Riversdale’s O’Keefe, who started out with MIM Holdings, once Australia’s largest copper and zinc miner and now owned by Xstrata. He later became managing director of Glencore Australia, holding the job for almost a decade before heading out on his own around 2004.
UBS is advising Riversdale on the deal and Rio Tinto is being advised by Macquarie .