MELBOURNE: BHP Billiton Ltd may have to top up its record-breaking A$272 billion (K745 billion) all-scrip bid for Rio Tinto Ltd with cash, after its initial overtures were rejected.
The world’s largest mining company confirmed yesterday it had approached Rio Tinto with a merger proposal, ending months of takeover speculation surrounding the two.
But BHP Billiton was forced back to the drawing board after Rio Tinto, the number three miner in the world with a market capitalisation of A$180 billion, (K493 billion) said the deal was “significantly” undervalued.
“BHP Billiton has again written to Rio Tinto and intends to continue to seek an opportunity to meet and discuss its proposal with Rio Tinto,” it said.
But the A$232.3 billion (K885.5 billion) predator may also face rival bids for Rio Tinto, particularly from Brazilian miner CVRD, now that it intentions have been revealed.
BHP Billion said there was “no assurance that any transaction or offer will result”.
Ord Minnett analyst Peter Arden said BHP Billiton may have to add cash to its three-for-one paper offer to get it past the Rio Tinto board.
“They might have to throw some cash in, but, I think shareholders in Rio would really welcome the opportunity to have BHP scrip,” Mr Arden told AAP.
A merger would create the world’s largest producer of coking coal, thermal coal, copper and aluminium.
The combined group would also have similar iron ore output to leading global iron ore producer CVRD.
The group would have a market capitalisation around A$412 billion, a footprint in more than 25 countries and a workforce of around 70,000.
“The obvious attraction for BHP is the iron ore tie-up, the Pilbara tie-up and the synergies and cost savings that present themselves,” Fat Prophets analyst Wendt told AAP.
Rio Tinto and BHP Billiton are the two largest producers of iron ore in the Pilbara, with a combined output of 277 million tonnes last year.
There’s room to extract cost savings and synergies of about US$500 million ($A540.51 million) in the Pilbara alone, Citigroup analyst said.
A concentration of the iron ore market could pose a regulatory hurdle to any merger, but Mr Wendt said it was unlikely to prove a major stumbling block. – AAP