Sydney: Global miner Rio Tinto is finalising a $3.8 billion takeover bid for Africa-focused Riversdale, according to sources, upping an earlier offer as it seeks to gain key coking coal supplies amid soaring demand from India and China.
Rio Tinto was locked in talks with Australian-listed Riversdale Mining over a A$16 per share takeover offer but a final deal has not yet been completed as there was some last minute wrangling over price, one source familiar with the matter said Wednesday.
An announcement was expected either later Wednesday or Thursday the source said, confirming media reports that Rio Tinto had offered around A$16 per share for Riversdale.
That would be a 13.5% premium to Riversdale’s close on 3 December, the company’s last trading price before news of Rio’s interest was announced, but lower than its last trading price of A$16.30.
Shares in Riversdale, which said earlier this month it was talking to Rio about a A$15 per share offer, were placed in a trading halt on Tuesday after newspaper reports about a new offer.
There was some speculation Rio may offer up to A$16.50 but one of the sources said Wednesday the price was closer to A$$16.00.
Spokesmen for both Riversdale and Rio Tinto declined to comment.
High growth market
A successful bid for Mozambique-based Riversdale would give it access to what is expected to be the world’s second-largest coal exporting market in coming years. Rio is currently underweight in the commodity. Its large reserves of thermal coking coal have relatively low costs and are well situated to serve China and India’s booming markets.
“We think including Riversdale in the portfolio would address this and proximity to the high growth Indian market would be an advantage,” Morgan Stanley analyst Craig Campbell said in a recent note.
Analysts say Riversdale may eventually supply 5-10% of the global market for the key steel-making material.
For this reason, Riversdale was being eyed by other large mining companies, potentially sparking a bidding war, according to sources close to the deal.
Potential interested parties include Anglo American, ArcelorMittal and Xstrata , they said.
Five state-run Indian firms also last week confirmed they were considering an offer. Brazil’s Vale , which owns nearby coal mines on Mozambique was not expected to bid.
Riversdale’s large shareholders are seen as potential obstacles to a deal. India’s Tata Steel owns about 24% of Riversdale. Brazilian steelmaker CSN and US Investment firm Passport Capital are also large shareholders.
Rio was making the offer alone and not part of a joint venture with another party, one source said.
Back in the hunt
Rio Tinto 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 Anglo-Australian mining giant said it was set to nearly triple capital spending, to $11 billion in 2011.
Unlike cash-rich BHP Billiton, which recently made an unsuccessful $39 billion bid for fertiliser giant Potash, Rio has been off the acquisition trail in recent years as it sought to repair its balance sheet.
UBS is advising Riversdale on the deal and Rio Tinto is being advised by Macquarie .