Rio Tinto could be in the sights of more suitors, analysts say

By James Regan
Reuters
via Yahoo News
Thursday, November 8, 2007

http://news.yahoo.com/s/nm/20071109/bs_nm/riotinto_bhpbilliton1_dc;_ylt=...

SYDNEY, Australia -- Rio Tinto Ltd/Plc could be in the sights of more corporate suitors after rebuffing a $140 billion all-share takeover proposal from rival miner BHP Billiton Ltd/Plc.

Analysts said an array of interested parties, from Chinese oil companies to Siberian nickel miners, hoping to cash in on a global boom in demand for mineral commodities had the potential to launch rival offers.

Massive stock market floats have brought companies excess cash, supplying the capital needed to finance a bid.

"If you put together a consortium of Chinese, they could be out there, as well the Russians, given there is a lot of oil money being generated," said Shaw Stockbroking analyst John Colnan.

BHP said on Thursday it had approached its smaller rival with a three-for-one share offer, but Rio Tinto quickly rejected the deal, saying it undervalued the company and its prospects.

The BHP offer was pitched at a premium of 14.4 percent based on closing prices of the shares in Australia before the announcement, but this flipped into a discount in later trading, implying investors expect a sweetener from BHP or a rival offer.

In early afternoon Australian trade, Rio was up nearly 17 percent to A$132.51 a share, while BHP was a touch lower. Rio declined to comment on whether it had received other approaches, although analysts said the company's wide range of operations worldwide and profit outlook made it an attractive target.

Only hours earlier, Rio had mopped up the last of the shares in aluminum maker Alcan, which it acquired for $38.1 billion after trumping an offer by Alcoa Inc.

Credit ratings agency Standard & Poor's will wait to see what comes next from BHP for Rio Tinto before making any credit rating decisions, S&P director Peter Stephens said.

BHP has not said how it would address anti-trust issues that may arise, particularly in iron ore where it and Rio already mine hundred of millions of tonnes annually and are spending heavily to expand further. Only Brazil's CVRD mines more.

However, Rio's acquisition of Australian and Canadian iron ore miner North in 2000 raised few alarms with regulators.

Given neither company sells much into the highly regulated U.S. and European markets, Tim Barker of BT Financial Group said he doesn't see any anti-trust issues.

"The scarcity and the difficulty of bringing on new projects, sourcing people, makes these sorts of consolidations attractive," said Denis Donohue, senior portfolio manager of Suncorp Metway Investment Management, which owns shares in BHP and Rio Tinto.

Rio's rich iron ore, coal, and copper mines as well as its ranking as the world's top aluminum maker would offer diversification from oil for China's PetroChina, which has a market value exceeding that of BP Plc.

Shares in PetroChina more than doubled in their market debut on Monday after it raised $9 billion in the world's biggest IPO this year, surging past analysts' expectations.

"One possibility would be Chinese sovereign funds taking a blocking stake in Rio Tinto," FW Holst analyst Rob Craigie said.

In Russia, the world's biggest nickel miner Norilsk Nickel has said it will look overseas for more assets after completing the largest foreign acquisition by a Russian company, Norilsk already explores jointly with Rio Tinto in the Russian Far East and with BHP in northwest Russia and western Siberia.

Similar to BHP, Rio is a combination of two companies: Rio Tinto Plc, based in Britain, and Rio Tinto Ltd, based in Australia. The two merged in 1997.

The British based Rio Tinto Co. was formed in 1873 to mine ancient copper workings at Rio Tinto near Huelva in Spain. In Australia, Consolidated Zinc was incorporated in 1905 to treat zinc-bearing mine waste from the outback.

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