BHP Billiton to continue to seek merger

Mining giant BHP Billiton vowed to keep pressing its $150 billion bid to merge with Rio Tinto, telling shareholders Wednesday it was a compelling step despite the rival company's resistance and customers' concerns.

Executives addressing BHP Billiton's annual general meeting in the southern Australian city of Adelaide gave no indication that the company would consider boosting the value of its offer for Rio Tinto, which this week signaled it would strongly defend itself from the current bid.

Melbourne-based BHP Billiton, the world's biggest mining company, has proposed in an all-share deal to buy London-based Rio Tinto, in what would create a vast resources company. Both companies are listed on exchanges in Australia and Britain.

Chinese steelmakers and other major customers are objecting to the takeover bid, citing fears it would give the combined company inordinate control over iron ore pricing and supply.

BHP Billiton executives say a merger would speed the development of natural resources. They have toured Asia recently trying to sell the idea of the deal to major customers, and on Wednesday took their pitch to shareholders, saying it made strategic sense and would add value to the shares of both companies.

"The combination presents an opportunity to create the world's premier diversified natural resource company, and in our view no other combination is as logical or compelling," Chairman Don Argus said.

Chief Executive Officer Marius Kloppers added: "The bottom line is that these two companies are worth more put together than they are worth apart."

The message did not have immediate appeal to Australian investors, with BHP shares declining 1.55 percent to close down at 41.30 Australian dollars. Rio Tinto also lost value, closing down 0.55 percent at A$135.

Kloppers said BHP would continue talking to its customers about the merger.

"Many already see the logic of our proposal and the benefits of more product to market, more quickly," he said.

He said BHP remained hopeful that Rio Tinto, which has said it believes BHP's offer undervalues the company, would engage in merger talks.

On Monday, Rio Tinto outlined a bullish outlook for its future as a single company including plans for a staggering increase in iron ore output to 600 million metric tons a year. Rio Tinto also revised up production forecasts for key growth projects as it pumped up its argument that BHP's three-for-one share offer does not stack up.

Speaking to reporters after the meeting, Kloppers refused comment on whether BHP would raise its offer for Rio Tinto, and borrowed Argus' earlier phrase to describe the current bid.

"The terms of our proposal are logical and are compelling and our view hasn't changed on this since the start of this process," he said.

Argus said BHP believed a merger with Rio Tinto would benefit customers and shareholders by accelerating resource development. He said demand for BHP products remains strong, that prices for its commodities — including iron ore, coal, nickel and petroleum — would remain high, and that the company expects 9 percent growth in volumes in 2008.

The Chinese government is watching the deal closely.

"A merger between these two companies is a commercial matter over which we have no opinion," Foreign Ministry spokesman Qin Gang said Tuesday in Beijing when asked about the issue at a routine briefing.

"However, we hope that international iron ore prices will reflect the laws of market supply and demand," Qin said. "The price should be long-term, stable and beneficial to all, both the exporting and importing countries."

As the world's biggest steel producing and consuming nation, China depends heavily on iron ore imports, and complains it has too little say over pricing in the international market.

Chinese steelmakers and the country's new government investment fund have repeatedly rejected reports they planning to make a counter bid for Rio Tinto.

Asked whether BHP Billiton was preparing for the possibility that China might try to buy a strategic stake in the company, Kloppers said customers don't necessarily want a share of resource projects as long as they can buy the resources at a market price.

"One shouldn't take it as read that those customers necessarily feel the need to own the resources if the market can supply them at market price," Kloppers said.