BHP, Rio seek to win over investors

A Rio Tinto Group employee walks past machinery at Karatha Port in northwestern Australia. Jack Atley/Bloomberg News

Executives at Rio Tinto, who rejected the bid, are countering with discussions to persuade its investors that the proposed $150 billion takeover undervalues the company.

"This proposal will benefit both sets of shareholders and we will be very patient to get that message out," BHP Billiton Chief Executive Officer Marius Kloppers said on a conference call from London.

Kloppers, who took over as BHP chief last month, is seeking to avoid an expensive, hostile takeover by wooing the 60 percent to 70 percent of the two companies' investors holding stock in both businesses. Melbourne-based BHP released details of the proposal it sent to Rio on November 1, including a $30 billion share buyback and estimated annual savings of $3.7 billion.

Rio Tinto is also meeting investors to explain why the company is worth "considerably more" than the offer, London-based spokesman Nick Cobban said. Rio said last week the offer of three BHP shares for every one of the UK company's stock "significantly" undervalued the business.

"Most of the synergies seem to come from the competitive advantage of Rio Tinto's assets," Cobban said. "Our assets are worth more to their shareholders than their assets are to our investors."

No talks

No meeting with BHP is planned as the board already rejected the proposal.

Rio shares rose 34 pence, or 0.6 percent, to 5,658 pence in London, extending their premium above BHP's indicative offer price to 17 percent.

BHP fell 21 pence, or 1.3 percent, to 1,607 pence, its third straight decline since the company unveiled the offer on Thursday.

Investors in Rio would own 41 percent of the merged company with pro-forma earnings before interest, tax and depreciation of $40 billion, BHP said in a slide presentation.

BHP has had early talks with regulators in Australia and Europe and a "very detailed look" at whether a takeover would generate antitrust complaints for any products, Kloppers said.

Gaining increased control over markets wasn't part of the motivation for the proposed acquisition, he said.

Combining the two companies would allow "economies of scale, sharing of infrastructure and removing duplication", Kloppers said.

A combined BHP and Rio would have a 38 percent market share in global seaborne iron-ore trade, according to Australia & New Zealand Banking Group Ltd. That would be similar to the market share of Brazil's Cia Vale do Rio Doce.

A merged company would develop at a faster pace iron-ore mines in Western Australia and boost efficiency of coal mining in the Hunter Valley and Bowen Basin in Australia, BHP said.

"This combination will allow us to deliver more product more quickly to our customers," Kloppers said. The group would be Melbourne-based and led by "the best person for the job".

Bloomberg News

(China Daily 11/14/2007 page16)