Commodities Supercycle: BHP, Rio Tinto Merger… Maybe.

Posted December 14, 2007

"BHP claims Rio will get back that lost value in cost savings and the reduction of competition after the merger. But Rio Tinto counters that BHP is just being cheap and possibly overvaluing its own power in the market." — Stephanie Grimmett

by Stephanie Grimmett

Baltimore – (TFN) Rio Tinto (RTP: NYSE) is getting annoyed with all of the hoopla surrounding a bid made by rival mining conglomerate BHP Billiton (BHP: NYSE).

The London-based company has applied to the United Kingdom’s Takeover Panel to set a deadline for the bid. Called the “put up or shut up” clause in Britain’s merger laws, the deadline would give BHP eight weeks to introduce a new bid for Rio Tinto or forget the whole thing altogether.

Last month, Rio tossed out BHP’s original offer of three of its shares to every one RTP share. The British mining company, ranked third globally, took umbrage at the offer, saying it was much too low. As of today’s close, Rio Tinto has a $165 billion market cap, and the offer only totaled $134 billion.

BHP claims Rio will get back that lost value in cost savings and the reduction of competition after the merger. But Rio Tinto counters that BHP is just being cheap and possibly overvaluing its own power in the market.

BHP promised to approach Rio Tinto’s major investors individually with the merger proposal. And Rio has taken the promise as a threat of harassment to its investors.

Steelmakers in Europe and China have moved to block any merger between the two companies. The combined mining corporation would wield enough power to effectively control the world’s iron ore prices. And steelmakers are none too happy about the idea that their main raw ingredient could soon be controlled by one Australian mining company.

In response to the bid, Chinese steelmakers are even considering a counter offer of their own, with possible help from the Chinese government’s foreign acquisition fund.

And most recently, Blackstone and a consortium of investors are linked to another possible counter offer. If the investment group does end up with Rio Tinto, it could break up the company’s assets and sell them separately.

If Rio Tinto convinces the Takeover Panel, BHP will have about two months to make an offer the mining company can’t refuse. But either way, BHP will find a high-profile buyout opportunity somewhere, and the consolidation trend will continue.

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