Rio Tinto outlines new plans to boost its value by $31 billion
27 Nov 2007
Mining major Rio Tinto, which is fighting a takeover offer from its bigger rival BHP Billiton, plans to raise iron ore output and get better-than-expected cost savings from the acquisition of aluminium producer Alcan Inc, which may boost its value by $31 billion.
While higher iron ore production could add around $28 billion in value, the cost savings from Rio''s $38.1 billion acquisition of Alcan may boost the company''s value by $3 billion. The plans are part of an attempt to repel BHP''s unsolicited $129 billion all-stock takeover proposal, which Rio Tinto says undervalues the world''s third-largest mining company.
Iron-ore production could treble to more than 600 million metric tonnes a year, while cost savings from the Alcan acquisition may be $940 million, 50 per cent more than expected, Rio says. A review has also found possible assets sales of as much as $30 billion.
Rio said on Monday 26 November that demand for iron ore, copper and aluminium may as much as triple over the next 25 years, driven by expanding economies in China and India, emphasising its view that the offer undervalues the company. Rio is the world''s biggest aluminium producer and the second-largest supplier of iron ore.
But BHP is likely to come back with a firmer offer, now that Rio has outlined some developments and given an indication of where they think the company''s value lies, feel analysts.
They say BHP could potentially afford to offer $27 billion in cash to sweeten its proposed three-for-one stock offer for Rio. BHP could pay as much as 7,100 pence ($147) a share for Rio and an offer of 6,300 pence may be high enough for Rio''s board to recommend the proposal.
