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By Mike Caggeso
Rio Tinto released a statement saying its board considered the proposal and "concluded that it significantly undervalues Rio Tinto and its prospects."
In a deal that likely put Rio Tinto in play and raised its value all at the same time, news of the offer and its rejection sent Rio's shares up 23.1% on New York Exchange yesterday (Thursday). Rio's shares closed at $440.20, up $82.70 each.
BHP's stock slipped $3.50 a share, or 4.36%, to close at $76.85 yesterday.
"BHP Billiton has again written to Rio Tinto and intends to continue to seek an opportunity to meet and discuss its proposal with Rio Tinto. There can be no assurance that any transaction or offer will result from BHP Billiton's proposal," read a BHP company statement, which clearly avoided the words "buyout," or "merger," referring to a possible deal as a "combination."
A BHP takeover of Rio Tinto, worth an estimated $159 billion, would likely make for the largest acquisition in history, ahead of AOL's $124 billion buyout of Time Warner Inc. (TWX). The buyout would also create a company that controls more than a third of the iron-ore market, supplies the most energy coal and copper, and owns mines and oilfields across six continents, Bloomberg News reported.
"If the name of the game at the moment is resources in the ground, then why pussyfoot with junior or medium-size miners when you can go to the top?" Stephen Pope, chief global market strategist at Cantor Fitzgerald Europe LP in London, told Bloomberg. "This deal will happen, it's just a question of time."
And while BHP mulls another strategy, Rio Tinto said it is exploring options for the sale of its United States coal subsidiary, Wyoming-based Rio Tinto Energy America, the second largest coal producer in the U.S. market, MarketWatch reported.
Rio also said it had acquired 95.82% of the outstanding shares of Alcan Inc. (AL), making it the world's largest producer of aluminum. Rio's $38.1 billion bid for Alcan was made in late August. Rio Tinto also dumped $350 million into a 46.65% stake in Ivanhoe Mines Ltd. (IVN), its partner in Mongolia's Oyu Tolgoi copper-gold project.
BHP's assets include the massive Olympic Dam ore deposit in South Australia. The deposit also was BHP's last major purchase, a $7.3 billion buyout of reserve owner Western Mining Corp., in 2005. Australian newspapers estimated the value of the Olympic Dam property, alone, to be worth $1 trillion.
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News and Related Story Links:
- Money Morning:
'Trillion-Dollar' Mine for BHP
- Money Morning Investment Analysis:
Three Ways to Profit From Australia's Strong Dollar and Massive Natural Resource Reserves