KEY POINTS:
Australian mining giant BHP Billiton launched a hostile $188 billion bid for rival Rio Tinto yesterday, in what could be the second biggest takeover in corporate history.
A marriage of the two mining giants would create the world's third-richest company, with a market capitalisation eclipsed only by Exxon
Mobil and General Electric.
It would also create a company that would dominate world supplies of dozens of key minerals, raising concerns among industrial buyers from Europe to China that one company would have too much clout on pricing.
BHP sweetened its initial approach by 13 per cent, offering 3.4 of its shares for every Rio share. In November, it offered three shares for one, but failed to persuade the Rio board to agree to a friendly merger.
"The Rio Tinto shareholders will now decide," said BHP chief executive Marius Kloppers.
BHP needs at least 50 per cent of holders of Rio's Australian and London shares to accept.
"This is our first and only offer," Kloppers said, though he later would not say if that meant it was the final one.
"I think it's closing a door that shouldn't have been closed," said Ken West, a partner in Perennial Growth Management.
Rio shares were trading at a ratio to BHP shares which is close to the offer, suggesting investors were betting Kloppers would stick with 3.4 shares for one.
But some analysts remained sceptical the bid would be successful.
"Given our market conditions and the outlook, if you look at comparative mergers and acquisitions, it probably is not going to get there," said Perennial's West.
As an added incentive, Kloppers promised a $30 billion share buyback if the deal went through. BHP said Rio shareholders would hold 44 per cent of a merged entity, compared with 36 per cent in last year's initial approach.
The offer equates to a 45 per cent premium to Rio's stock price in November before BHP first raised the idea of a union.
"It's a lot fairer than the offer we've had before. It's by no means a knock-out offer," said Bertie Thomson, a fund manager at Aberdeen Asset Management, who holds both Rio and BHP shares.
Rio said it was considering the offer and advised its shareholders not to take any action.
Rio chief executive Tom Albanese had called the initial BHP proposal "dead in the water" and "ballparks away" from a realistic offer.
Rio Tinto has long opposed BHP's overtures, arguing it was better off as an independent company, digging its own iron ore mines and churning out hundreds of thousands of tonnes of copper, zinc and aluminium.
Key customers for both companies, particularly steel mills in China and Japan, which buy hundreds of millions of tonnes of ore, have raised concerns about the potential dominance of a merged group.
- REUTERS