Mining giant BHP Billiton (BHP) has announced the improvement of its takeover bid for Rio Tinto (Rio), lifting its valuation of the rival mining company to US$147.4 billion based on its closing share price of February 4.
According to the increased offer, BHP is offering 3.4 of its shares for every one Rio share, an increase from its initial and informal proposal of a three-for-one all-share takeover, which Rio rejected stating that the amount undervalued the company and its assets.
In the event that the proposed link-up between BHP and Rio is established, the combination of the companies will constitute the second biggest takeover ever and create the world's premier diversified natural resources company worth around US$336 billion, leading various mining production groups including iron ore, coking coal, thermal coal, copper and aluminum. The offer requires acceptance from shareholders owning more than 50 percent of publicly held shares in each of Rio Tinto Limited and Rio Tinto Plc.
In a statement on the issue, BHP said that it has been holding pre-notification discussions with the European Commission with respect to the EU merger control process and expects to notify the transaction formally to the European Commission in the first quarter of 2008 and that the preliminary contact has also been made with the relevant regulatory authorities in Australia, the US, Canada and South Africa and formal notifications will be filed in those jurisdictions in due course. BHP expects to receive the necessary clearances during the second half of 2008.
Under UK takeover regulations, BHP had until Wednesday to formalize its offer or walk away for six months. Up until last week, the market had been expecting BHP to formalize its three-for-one offer; however these expectations completely changed on Friday when state-owned mining company Aluminum Corporation of China (Chinalco) and Alcoa Inc. (AA) revealed that they had acquired a 12 percent stake in Rio Tinto's London-listed stock, equating to nine percent of the whole group. Meanwhile, the pair announced that they are not currently intending to make an offer for the whole of Rio, nor they are proposing to take a seat on the board or to become involved in the management of Rio but that they might reconsider the situation if BHP increased its bid.
Commenting on the takeover offer, Rio Tinto chairman Paul Skinner said that the board of Rio Tinto will consider the terms of the proposal "carefully" in the light of all the circumstances and will make a further statement once they have finalized the assessment and that the board will ask shareholders not to take any action.
According to different market analysts, the new BHP offer is adequate to bring Rio to the negotiating table.