The Wall Street Journal-20080122-BHP Unlikely to Raise --36-99-22 Billion Bid For Rival Rio Tinto by a Feb- 6 Deadline
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BHP Unlikely to Raise $99.22 Billion Bid For Rival Rio Tinto by a Feb. 6 Deadline
MELBOURNE, Australia -- BHP Billiton is unlikely to sweeten its $99.22 billion unsolicited proposal to acquire mining rival Rio Tinto by a Feb. 6 deadline, according to people familiar with the company's plans.
The mining titan's intransigence comes amid further attempts at mining-industry consolidation, such as talks disclosed yesterday between Brazil's Companhia Vale do Rio Doce and Swiss miner Xstrata PLC.
The consolidation wave could increase pressure on both BHP and Rio to reach a deal, despite BHP's stance. By not sweetening its offer, BHP could be trying to pressure Rio to negotiate. Rio has refused to engage in buyout talks with BHP, saying its proposal undervalued the company.
Christina Mills, a Rio spokeswoman, said nothing has changed since BHP made its initial offer and that BHP's proposal isn't acceptable.
BHP proposed buying Rio in November in an all-stock deal that would create the world's largest mining company by production. BHP has until Feb. 6 to make a firm offer for Rio Tinto, or walk away from its proposed takeover. The United Kingdom Takeover Panel, the British agency that oversees mergers, would prevent BHP from making a new bid for six months if it decides against formalizing its offer.
It isn't clear whether BHP will let the deadline pass without formalizing its offer. But it appears the company won't increase its offer, because it believes the price of Rio shares will fall. Even if it does walk away, it could come back after six months and take another stab at getting Rio.
Given the high price of commodities, especially iron ore, it may seem risky to wait in the wings. But Rio is a big company to digest, and there are few companies that could go after the miner. For example, both companies are powers in iron ore, a crucial steelmaking ingredient, but analysts say none of the world's steelmakers are big enough to go after them alone.
BHP is betting the world economy is going to work in its favor, said the people familiar with its thinking. Demand for steel, aluminum and other processed metals isn't expected to grow as quickly this year as last. Though demand is still expected to grow, BHP thinks Rio's share price will fall somewhat as investors ease back expectations, these people said.
Rio has a different view of the economy. Chief Executive Officer Tom Albanese has been traveling the world to prove to investors that Rio is solid enough to enrich its investors as a stand-alone company, compared with a combined company under the terms of BHP's current proposal.
Mr. Albanese has tried to keep the focus on the strong market for minerals, especially iron ore, and metal demand coming from China and India. Rio believes its operations in Australia are stronger and better poised to expand and take advantage of expected climbing prices. "We have seen increased iron-ore prices since our November outlook," Mr. Albanese said late last week.
He said that while metals use in Europe and the U.S. is slowing, robust growth in China makes up for it all, even at a time when Chinese growth is slowing.
