Rio Soars On Raised Bid Hopes

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Forbes
By Vidya Ram
January 18, 2008

LONDON - Round two of the Rio Tinto takeover saga kicked off on Friday when reports that BHP Billiton could raise its offer by more than 30% sent shares in the miner soaring.

Rio Tinto (nyse: RTP ) jumped 6.4%, or 285 pence ($5.59), to £47.64 ($93.44), on Friday afternoon in London, while BHP Billiton (nyse: BHP - news - people ) rose 2.2%, to £13.79 ($27.04).

"There have been rumors overnight that BHP Billiton may increase its bid for Rio Tinto by as much as 32%," said Michael Rawlinson, head of mining at Liberum Capital in London. "The speculation suggests BHP Billiton may bid 3.5 shares and $14 for each Rio Tinto share."

This would value Rio Tinto at £55.74 ($109.31) a share, or a total of $144 billion.

Spokesmen from BHP and Rio declined to comment on the speculation.

BHP Billiton has until Feb. 6 to make a formal offer for Rio Tinto after it was given a "put up or shut up" deadline by Britain's Takeover Panel in December.

So far BHP has only made an informal offer of three of its shares for each of Rio Tinto's, an offer which was swiftly rejected by Rio Chief Executive Tom Albanese, on the grounds that it would be "value destructive" for Rio shareholders and at least "two ball parks" away from what its share were worth.

Rio Tinto, which in the past has had an enviable reputation as a company that under-promised and over-delivered, has raised the stakes with BHP recently.

In November Rio unveiled plans to boost production across all its division in order to feed demand from China. And on Wednesday it said that production of iron ore, aluminum, gold and copper reached record highs during 2007 as it ramped up operations in Australia and took over the assets of Canada's Alcan.

If BHP comes back with a raised offer price and more cash, don’t expect the drama to end there. BHP will have to make an offer of at least £60 ($117.67) a share for it to gain the full support of Rio Tinto's shareholders, said Charles Stanley analyst Tom Gidley-Kitchin.

Source: Forbes