BHP raises Rio bid; no immediate Chinese riposte

By James Regan

BHP hopes to sell Rio shareholders its idea of assembling a super miner, supplying the lion's share of the world's industries with millions of tonnes of minerals, but runs the risk of igniting a bidding war with Rio's largest shareholder, state-run aluminum group Aluminum Corp of China (Chinalco).

"Rio Tinto shareholders will now decide," BHP Chief Executive Marius Kloppers told reporters. He added: "This is our first and only offer," though he later would not say if that meant it was the final one.

A successful marriage would be the world's second biggest takeover, ranking only behind Vodafone's $172-billion purchase of Mannesmann in 1999.

Shares in BHP, which reported a 2.4 percent dip in first-half profit to $6.017 billion, tumbled 7.5 percent to A$36.66 in Sydney -- their steepest one-day percentage fall in 20 years. They traded 4.95 percent weaker in London at 15.15 pounds by 7:00 a.m. EST. Rio slipped 0.4 percent to 54.15 pounds.

London share prices value Rio at a price earnings ratio of 21, versus 14 for BHP, 12 for Anglo American and 19 for Xstrata , a possible bid target of Brazil's Vale .

BHP's designs on Rio hit an obstacle last week when Chinalco teamed up with Alcoa Inc to buy $14 billion worth of Rio stock, giving it just over 9 percent of the company.

"There's no need to get shot-gunned into anything," said a source with direct knowledge of Chinalco's plans, who declined to be named because of the sensitivity of the situation.

Kloppers said the Chinalco/Alcoa share raid was "just another factor" to contend with.

The Hong Kong-listed shares of Chinalco's Chalco unit <2600.HK> <601600.SS> fell more than 11 percent on Wednesday, reflecting in part the premium Chinalco paid for its Rio stake.

BHP said Rio shareholders would hold 44 percent of a merged entity, compared with 36 percent in the initial approach. The offer equates to a 45 percent premium to Rio's stock price in November before BHP first raised the idea of a union.

"I think they now come back with something even pricier, and put pressure on BHP. The goal will be to make it too expensive for BHP, even though their own bid would be up for being blocked by Rio's board or regulators," he said.

Rio, which has argued it is better off on its own, said in a statement it was considering the offer, but advised shareholders to take no action.

A BHP/Rio marriage would be the latest union in a wave of big mining houses scooping up rivals to cash in on strong demand for minerals across Asia and elsewhere.

(Additional reporting by Sonali Paul and Victoria Thieberger in MELBOURNE, Denny Thomas in SYDNEY, Tom Miles and Nao Nakanishi in HONG KONG and Eleanor Wason, Laurence Fletcher, Mark Potter and Eric Onstad in LONDON; Editing by Ian Geoghegan/Rory Channing)