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).

"BHP Billiton's offers, while improved, still fail to recognize the underlying value of Rio Tinto's quality assets and prospects," Rio Chairman Paul Skinner said.

Several Rio shareholders said the sweetened bid was not enough to win them over and reate the world's third-richest company, ranked behind only Exxon Mobil and General Electric .

"It's a lot fairer than the offer we've had before, (but) it's by no means a knock-out offer," said Bertie Thomson, a fund manager at Aberdeen Asset Management , who holds both Rio and BHP shares.

Rio shares ended 4.6 percent higher than the value of BHP's offer, suggesting investors were counting on BHP bumping up the bid again. BHP needs at least 50 percent of holders of Rio's Australian and London shares to accept.

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CHINA HOLDS FIRE

Chinalco and Alcoa, with funding available from China Development Bank, have reserved the right to make an offer for Rio if there was another bid, but sources familiar with the situation told Reuters the Chinese, just beginning the Lunar New Year holiday, were in no rush to make a move.

"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."

"The acquisition of 12 percent by Chinalco at a price of 60 pounds per share does not set a benchmark for an all-share offer for the whole of Rio Tinto. It's the price Chinalco had to pay to secure a strategic stake during a market raid."

Kloppers said BHP had $55 billion in loans ready to support the bid and, as an added carrot, promised a $30 billion share buyback if the deal goes through.

COUNTERBID?

"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.

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/Elaine Hardcastle)