Rio Tinto rejects BHP offer

0 Comments | Deseret News (Salt Lake City), Dec 7, 2007 | by Dale Crofts Bloomberg

Tom Albanese, chief executive officer of Rio Tinto Group, which owns Kennecott Utah Copper, said BHP Billiton Ltd.'s unsolicited $133.7 billion takeover offer is "dead in the water" after his company rejected the bid for undervaluing Rio's assets and prospects.

"BHP presented an incomplete proposal, which our board took seriously," Albanese said Thursday in an interview from New York, where he's seeking investor support for plans to keep the company independent. "We rejected it on the basis of value. As far as we are concerned, the deal is now dead in the water."

BHP, the world's largest mining company, offered three of its shares for each Rio share in a bid to create a company that would control about a third of the iron-ore market and become the world's largest supplier of energy coal, copper and aluminum. Rio's London shares are trading at an 11 percent premium to the offer, signaling investors may be expecting a higher bid.

Albanese declined to comment on a report that Chinese steelmakers and the country's government are studying a joint bid for Rio to block BHP's offer, because the acquisition would give the combined company control of almost half of Asia's iron-ore market.

A five-year gain in metal prices has spurred about $185 billion of bids in the industry in the past year, according to Bloomberg data. In September, China created a $200 billion investment fund, China Investment Corp., to improve returns on the nation's $1.46 trillion of reserves.

Rio isn't interested in counter-bidding for BHP in a so- called Pacman defense because such a maneuver wouldn't benefit Rio shareholders, Albanese said Thursday, referring to the 1980s video game where the main character turned around to eat its ghost pursuers after swallowing a special pill.

"Our principal objective is to create value for shareholders," Albanese said. "I cannot conceive of a scenario where a Pacman defense creates value for Rio Tinto shareholders."

Albanese said his relationship with BHP counterpart Marius Kloppers is "good." He declined to comment on whether he spoke to Kloppers in the past week.

Last month, Albanese outlined plans, including developing mines in Australia and Guinea, to triple the company's iron-ore output to more than 600 million tons a year. Rio is also increasing its dividend 30 percent and said it may sell as much as $30 billion of assets in an attempt to repel BHP.

BHP's Kloppers said merging its operations and infrastructure with Rio would yield annual savings and revenue gains of $3.7 billion.

Rio bought Alcan Inc. for $38.1 billion in October to become the world's largest aluminum producer. Cost savings from the acquisition may be $940 million, about 50 percent more than first expected, the company has said.