Rio Tinto seen inching closer to Riversdale buy after hiking offer

Rio Tinto seen inching closer to Riversdale buy after hiking offer

Kolkata / Melbourne / Mumbai: Rio Tinto Plc. isn’t giving up hopes of taking over Australia’s Riversdale Mining Ltd, though key shareholders—India’s Tata Steel Ltd and Brazilian steel maker Companhia Siderurgica Nacional (CSN)—have raised their stakes, potentially frustrating the UK miner’s bid to secure majority control in the Sydney-based firm.

Rio Tinto on Thursday announced it was raising its offer for Africa-focused coal miner Riversdale’s shares by 50 cents to Australian $16.50 apiece.

It, however, didn’t make change to the key condition in its $3.9 billion (Rs17,589 crore) bid that it wouldn’t buy any share at all unless it manages to secure at least 50% stake under the open offer.

Rio Tinto’s revised offer price represents a 5.4% premium over Riversdale’s closing price on the Australian Securities Exchange (ASX) on Thursday.

Riversdale chief executive Steve Mallyon said the higher bid was helping to win over institutional shareholders, but he did not know how Riversdale’s two biggest shareholders, Tata Steel and CSN, would respond.

Without Tata Steel and CSN, Rio needs nearly full support from the rest of Riversdale’s shareholders for the bid to succeed, but up to now institutions have been reluctant to commit without knowing the two steel makers’ intentions.

“I can say that from the institutional calls that I’ve made in the last few hours that there’s some growing support for Rio Tinto," Mallyon told Reuters in an interview.

“I think there’s momentum building with the institutions, which is important in terms of convincing groups such as Tata that Rio’s going to be successful," he said.

Riversdale was one of the top gainers on Thursday—its shares jumped 3% to Australian $15.61 each, while the benchmark ASX200 index fell 68 points, or 1.4%, to 4,699.7 points. Its shares seesawed in a wide range after Rio raised its offer.

“The market’s clearly a bit sceptical that it will get across the line," said Peter Chilton, analyst at Constellation Capital Management, which owns shares in Rio Tinto.

In its statement raising the offer price, the UK miner said it would not increase its offer to Riversdale’s shareholders beyond this level unless a competing bid was made. Alongside, Rio Tinto extended its offer by two weeks till 1 April.

On 2 March, Tata Steel’s subsidiary Tata Steel Global Minerals Holdings Pte. Ltd said in a regulatory filing that it had raised its holding in Riversdale by 2.9 percentage points to 24.21%.

A month ago, CSN had said in a similar filing that it had raised its stake in Riversdale from 17.58% to 19.9%. Both had ramped up their stakes through on-market purchases.

Between them, they now own 47%, which makes it difficult for Rio Tinto to secure majority control in Riversdale unless at least one of the two steel makers decides to sell.

The UK miner has managed to secure only 17.86% of Riversdale’s shares, according to a statement issued by it to ASX on 3 March.

The two steel makers raised their stakes even after all directors of Riversdale, including the Tata Steel nominee, recommended to shareholders that they should cash out.

Tata Steel, which continues to be the largest shareholder in Riversdale, owns 35% stake in its Benga mine in Mozambique, where production is expected to begin in September.

A key Tata Steel official said his company wasn’t “losing sleep over Rio Tinto’s bid". “We have more than 50% effective control in Benga—Riversdale’s key asset," he said, speaking on condition that he would not be named. “So, Rio Tinto’s bid doesn’t really affect us in any manner."

Tata is a long time shareholder in Riversdale and has a director on the board who has backed Rio Tinto’s offer, so Tata Steel is clearly not hostile to Rio Tinto. Tata Steel managing director Hemant Nerurkar has said the company is mainly interested in securing coal supplies from Riversdale.

Riversdale reiterated it was not aware of anyone lining up a competing offer.

“I don’t think there’s anyone else out there despite all of the rumours. It’s been well tested since the bid was announced in mid-December," Mallyon said.