BHP Billiton may have to offer a 60-per cent premium for hostile takeover of Rio Tinto
15 Nov 2007
That is a 61-per cent premium to the stock''s price. Rio had paid a similar premium to buy Alcan for $38.1 billion. BHP said last week that Rio had rejected its three-for-one share offer. BHP Billiton has lined up a $70 billion financing package through Citigroup, to bolster its $140-billion takeover approach, and may use $30 billion as a cash sweetener for Rio investors.
The proposed takeover, which may be the world''s largest ever, seems to follow the prediction of BHP chief executive Marius Kloppers that the five-year rally in commodities will be sustained. The strategy behind the deal is to buy the best existing assets, and leverage off sales to emerging economies like China and India for the next 15 years.
Together, BHP and Rio would create a company with an estimated net income of as much as $26 billion. The merged company''s assets would include a stake in Chile''s Escondida, the largest copper mine in the world, and operations in uranium, aluminium, diamonds, lead and nickel.
It would have a market value of around $379 billion based on Friday''s closing prices and would have more than a third of the iron-ore market, the most energy coal and copper reserves, and operations over six continents. A combination of the two companies could generate anything from $3 billion to $5 billion in pre-tax cost savings.
BHP has said it would pursue merger talks with Rio. In a separate statement, a Rio representative said the bid "significantly undervalues Rio Tinto and its prospects".
