BHP Billiton bids for Rio Tinto

BHP Billiton formalized its unwelcome takeover bid for Rio Tinto on Wednesday and upped the stakes with an all-share offer worth $147.4 billion that would create a global mining monolith.

Rio Tinto, which rejected an initial approach from BHP Billiton last year as too low, said it would consider the new offer and urged its shareholders not to act hastily.

BHP Billiton is offering 3.4 of its shares for every one Rio Tinto share, an increase from the initial informal proposal of three-for-one, the Melbourne-based company said. The offer applies to both companies in the Rio Tinto Group, the Australian-listed company Rio Tinto Ltd. and British-listed Rio Tinto PLC.

BHP Billiton is already the world's largest diversified mining company, and Rio Tinto is the third-largest, and analysts say that if the deal succeeds it would be the biggest takeover in the mining sector and one of the biggest ever in the corporate world.

Steelmakers in China, Japan and Europe have protested BHP Billiton's bid for Rio Tinto, contending that a takeover would give it too much influence over global iron ore supplies and pricing.

The deal would be subject to regulatory approvals in Australia, the United States, Europe and elsewhere, and to 50 percent shareholder approval, BHP Billiton Chief Executive Officer Marius Kloppers said.

He said the proposed merger would deliver efficiency benefits worth $3.7 billion a year and raise the value of shareholdings in both companies.

"I believe there is widespread support for the compelling logic of the proposal to combine the companies," Kloppers told reporters and analysts at a briefing in Sydney.

Rio Tinto Chairman Paul Skinner said the company would carefully consider BHP Billiton's latest offer and asked shareholders not to take any action yet.

"The boards of Rio Tinto will consider the terms of the proposal carefully in the light of all circumstances and will make a further statement once they have completed this assessment," Skinner said.

Rio Tinto's shares in Australia surged Wednesday, defying a broad market plunge to rise more than 2 percent to 129.91 Australian dollars ($117.79). Shares in BHP Billiton — which also Wednesday reported a 2.4 percent drop in net profit for the six months to end-December — fell almost 5 percent to 37.79 Australian dollars ($34.26).

Analysts said BHP Billiton's new offer would be more attractive to Rio Tinto than the earlier bid.

"It's a good starting point, it should get Rio to the negotiating table," Rob Patterson, managing director of Argo Investments, told Dow Jones Newswires.

In documents accompanying the announcement, BHP Billiton valued its latest offer at $147.4 billion using its closing share prices Monday. BHP Billiton also said that based on its share prices as of Oct. 31, the last trading day before it first approached Rio Tinto, the deal would be worth $173.6 billion.

The value of the all-share swap changes daily as the shares of BHP Billiton trade in their separate listings on Sydney and London.

BHP Billiton's approach to Rio Tinto was complicated last week when Aluminum Corp. of China and Alcoa Inc. bought a 12 percent stake in Rio Tinto's London-listed stock, which equated to a 9 percent stake in the whole group.

Kloppers said the development was interesting but did not affect BHP Billiton's offer.

The purchase by Aluminum Corp. of China, known as Chinalco, and Pittsburgh, Pennsylvania-based Alcoa followed rumors that some Chinese entity might try to block BHP Billiton's takeover bid for Rio Tinto.

Chinalco President Xiao Yaqing said this week in Australia that the stake it took in Rio Tinto reflected his company's confidence in the global economic outlook and the ability of Rio Tinto's management.

He suggested Chinalco might be prepared to sell its stake in Rio Tinto as part of a BHP bid "if the return is attractive."

Chinalco and Alcoa have said they have no intention to raise their stake in Rio Tinto, though they reserved the right to participate in a takeover offer within the next six months.

BHP Billiton said it had already secured a committed bank financing facility of $55 billion.

Under the offer, Rio Tinto would hold 44 percent of the merged entity. BHP Billiton's previous approach on Nov. 8 equated to 36 percent of the merged group.

If the offer is successful, BHP Billiton said it will return up to $30 billion to shareholders through a share buyback within 12 months of completing the acquisition.

Earlier Wednesday, BHP posted a net profit of $6.02 billion in the six months ended Dec. 31, down 2.4 percent from a year earlier because of moderating global growth.

The company's profit for the last half of 2006 was $6.2 billion.