Mining group Rio Tinto spurned an improved 147.4 billion US dollar takeover offer from rival BHP Billiton on Wednesday, saying the terms of the proposed mega-merger were not in the interests of shareholders.
Amid speculation Rio Tinto was set to become the centre of a bidding battle, company management said the proposals from BHP "fail to recognise the underlying value of Rio Tinto’s quality assets and prospects."
Anglo-Australian BHP, the world's biggest mining group, had earlier proposed to exchange 3.4 of its own shares for each Rio Tinto stock, an improvement on its previous three-for-one offer that had also been rejected as inadequate.
BHP said the combination would help to meet rising demand from resource-hungry China, but the proposed tie-up has raised concerns in Beijing because of the market power of a merged group.
Last week, state-owned Chinese aluminium giant Chinalco teamed up with US-based peer Alcoa to buy the equivalent of 9.0 percent of Rio Tinto for about 14 billion dollars.
The move was seen by analysts as an attempt to thwart a BHP takeover and The Times reported Wednesday, citing sources close to Chinalco, that the Chinese group and Alcoa may make a counterbid for Rio Tinto.
There has been speculation among market traders that Chinalco is looking to buy Rio Tinto to break the company up and that Alcoa would take Rio Tinto's Alcan aluminium assets.
Chinalco and Alcoa said Wednesday they were "monitoring developments," saying any offer for Rio Tinto "should reflect the fundamental value of the company."
The companies said last week that they had no takeover plans for Rio Tinto -- but they reserved the right to make an offer in the event of a bid from another party.
China's largest steel company, Baosteel, has previously called on the Australian government to stop the deal.
Shares in BHP Billiton fell sharply in Sydney and London, with analysts suggesting the group might have to raise its offer to at least four-to-one to win over a sceptical Rio Tinto board.
"The market is saying maybe there's more in it for Rio at this particular stage," Austock Securities private client adviser Michael Heffernan said.
A link-up between BHP and Rio Tinto, the world's third-largest mining group, would create a behemoth leading the planet in coking coal, thermal coal, copper and aluminium production.
The chief executive of BHP Billiton, Marius Kloppers, said Wednesday that he expected to hold talks with Chinalco about the takeover offer, adding that he was unconcerned about the Chinese group's investment.
"Given that Chinalco is a shareholder in Rio Tinto (...) at some point in time we could expect that there could be contacts between the parties," Kloppers told a press conference in London, speaking from Sydney.
When asked whether talks had already begun, he declined to commment.
Rio Tinto said in a statement that its management had "unanimously rejected BHP Billiton’s pre-conditional offers as not being in the best interests of shareholders."
Rio Tinto chairman Paul Skinner said: "BHP Billiton’s offers, while improved, still fail to recognise the underlying value of Rio Tinto’s quality assets and prospects.
"Our plans are unchanged, and will remain so unless a proposal is made that fully reflects the value of Rio Tinto."
Based on the closing valuations of both companies' shares in London on Wednesday, Rio Tinto shares were worth more than 3.5 times BHP's.
BHP Billiton's shares slumped 7.5 percent on the Australian Stock Exchange and closed down 4.82 percent at 1,520 pence in London.
Rio Tinto shares fell 0.31 percent to 5,417 pence in London.
Shareholders owning more than 50 percent of Rio shares traded in London and Australia would need to accept the offer for it to go through.
The increased offer by BHP overshadowed a separate announcement by the company that its net earnings fell 2.4 percent in the six months to December, representing the Anglo-Australian giant's first profits fall in five years.
The group reported that profit in the six months to December fell 2.4 percent to 6.017 billion US dollars.
It blamed rising costs and adverse exchange rates for the first profits fall since its 2002-2003 interim result.
But it remained upbeat about the outlook for commodity prices, saying Asian economies led by China and India "have shown little sign of slowing" despite recent global economic woes.
Date created : 2008-02-07