Feb 11, 2008
RIO Tinto has put pressure on BHP Billiton to increase its $US147 billion takeover bid by urging shareholders to reject it - until a better offer comes along. In a letter to shareholders, Rio chairman Paul Skinner said BHP's revised offer - a formal scrip bid of 3.4 BHP Billiton shares for each Rio Tinto share - still failed to recognise the underlying value of Rio Tinto's assets and prospects. "Our plans are unchanged, and will remain so unless a proposal is made that fully reflects the value of Rio Tinto," the letter said.
"We are forging ahead with our strategy operating and developing large-scale, long-life, low-cost assets to generate significant value for shareholders."
With the bid still needing clearance from competition regulators around the world, analysts believe the battle could drag on for more than a year.
As a result, they say this will give BHP Billiton scope and time to increase its offer.
BHP Billiton is also under pressure from a likely merger between its Brazilian rival Vale and Anglo-Swiss mining giant Xstrata, making a combination that would be the world's largest producer of nickel and eclipsing BHP Billiton as the world's biggest miner.
In the interim, Rio remains determined to keep rolling out the "good news", namely that the takeover target is blazing ahead with all cylinders firing.
Rio Tinto has announced that Pilbara Iron managing director David Smith will head the company's Simandou iron ore project in Guinea, West Africa, with plans to make it one of the world's biggest iron ore mines.
Rio Tinto Iron Ore chief executive Sam Walsh said Simandou had the same potential as the Pilbara of the 1960s.
Strategically, the announcement is an important positioning of Rio in the takeover battle.
The iron ore coming out of Guinea has a higher quality than the Pilbara's and it is closer to the key markets of the US, Europe and the Middle East.
Rio will also be under pressure to deliver on the ambitious growth strategy it is expected to reveal at its full-year results announcement on Wednesday.
Rio finance director Guy Elliott is expected to brief the Australian market on earnings.
Chief executive Tom Albanese is likely to remain in London alongside the company's much larger base of British investors.
The market expects Rio to report underlying earnings of about $US7.1 billion ($A7.9 billion), down slightly from last year's $US7.34 billion, due to a plateau in some commodity prices and rising costs.
But the fall is not in itself a worry, particularly as BHP's first-half earnings of $US6 billion released last week were lower than its profit for the two previous halves. Analysts expect Rio's earnings to rebound to a record $US10 billion this year due to higher iron ore prices and the integration of its $US38.1 billion acquisition of Canadian aluminium producer Alcan.
During its results briefings, Rio chairman Paul Skinner and the company's management team was expected to provide more detail on why it swiftly rejected an improved bid from BHP last week.
They might also provide more details on the progress of a $US15 billion-plus asset sales program.
Mr Albanese last month said Rio expected to sell $US10 billion of assets by the end of the calendar year, but the company has yet to reveal any divestments.
Source: The Age
Rio rejection puts heat back on BHP
