BHP Billiton launches $147 billion Rio Tinto bid

By James Regan

A marriage of the two mining giants would create the world's third-richest company, with a market capitalization eclipsed only by Exxon Mobil and General Electric .

BHP sweetened its initial approach by 13 percent, offering 3.4 of its shares for every Rio share. In November, it offered three shares for one, but failed to persuade the Rio board to agree to a friendly merger.

BHP, which posted a 2.4 percent drop in first-half profit to $6.017 billion, needs at least 50 percent of holders of Rio's Australian and London shares to accept.

"I think it's closing a door that shouldn't have been closed," said Ken West, a partner in Perennial Growth Management.

Some analysts were skeptical the bid would be successful.

Kloppers said the Rio board refused to discuss a merger before making the offer, but believed the offer still held widespread support among Rio shareholders, 60-70 percent of whom also hold BHP shares.

The offer equates to a 45 percent premium to Rio's stock price in November before BHP first raised the idea of a union.

"BALLPARKS AWAY"

Rio Chief Executive Tom Albanese had called the initial BHP proposal "dead in the water" and "ballparks away" from a realistic offer.

Rio Tinto has long opposed BHP's overtures, arguing it was better off as an independent company, digging its own iron ore mines and churning out hundreds of thousands of tons of copper, zinc and aluminum.

"The offer should be enough to get BHP talking to Rio," said Rob Patterson, managing director of fund manager Argo Investments. "We think to raise the offer to that degree probably makes sense."

Chinalco and Alcoa have said they have no plans to raise the stake further and Kloppers said the share raid was "just another factor" to contend with. Chinalco said on Wednesday it had no plans to comment on the bid. Alcoa said it was studying the bid.

Ratings agency Standard & Poors said late on Tuesday it put Chalco on creditwatch negative amid concern that Chinalco's large debt burden could pressure Chalco's financial profile.

"Why does BHP really want to tempt the dragon? Chinalco has already made the message clear: they really do not want to see a merger," said Geoffrey Cheng, director of equity research at Daiwa Institute of Research (H.K.) Ltd. "You're not going against a corporation. You're going against a nation."

In 2006, Brazil's Vale bought Canada's Inco for $17 billion, paid for with a revenue boost stemming from high world iron ore prices.

Rio swooped in to pay $38 billion last November for Canada's Alcan, trumping an offer of $27 billion from Alcoa to become the world's largest aluminum producer.

The group posted record half-year results in iron ore, petroleum and manganese, and increased its interim dividend by 45 percent to 29 cents a share.

(Editing by Jonathan Standing & Ian Geoghegan)