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.
"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
Shares in BHP, which posted a 2.4 percent dip in first-half profit to $6.017 billion, fell 7.5 percent to A$36.66 in Sydney -- their steepest one-day percentage fall in 20 years -- while Rio closed down 0.2 percent at A$127.14.
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 next move.
James Wilson, an analyst with DJ Carmichael & Co in Perth, Australia, said Chinalco would not have raided Rio last without taking into account a likely raised BHP bid. "This wasn't a one-month $14 billion trading position," he said.
"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."
He 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.
RIO CONSIDERS BID
Big customers for both companies, particularly steel mills in China and Japan that buy hundreds of millions of tonnes of iron ore each year, have raised concerns about the power a merged group would have on pricing of raw materials.
Larry Grace, an analyst at Kim Eng Securities in Hong Kong, said he expects Chinalco and Alcoa to make a counterbid for Rio.
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.
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.
Rio paid $38 billion last November for Canada's Alcan, trumping an offer of $27 billion from Alcoa to become the world's largest aluminum producer.
