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By Jason Simpkins
BHP Billiton Ltd. (BHP) suspended its $10 billion share buyback plan "until further notice," suggesting the company may not have given up on its plans to acquire rival Rio Tinto PLC (RTP). BHP has been carefully weighing its options ever since Rio rejected an all-share takeover proposal worth about $127 billion in November.
It's common practice, as a precaution against insider trading, for companies to suspend share buybacks if there has been a development that might affect the value of their securities. In this case, it's the possibility of BHP launching a hostile takeover bid against Rio Tinto.
Rio Tinto has practically dared BHP to take such a drastic step by refusing to even meet and discuss the possibility of a friendly merger. In a statement, Rio Chief Executive Officer Tom Albanese said BHP's offer "significantly undervalued Rio Tinto and its prospects," and that it was not just out of the ballpark, but "several ballparks away" from being an accurate appraisal.
Rio really threw down the gauntlet by going to the U.K. Takeover Panel and asking it to set a deadline for BHP to "put up or shut up," that is, to announce a bid or walk away for at least six months. That deadline should be set today (Wednesday), giving BHP until January or February to make its move.
BHP may need every minute of that time, as the hostile bid Rio Tinto is daring the company to make would be incredibly complicated. It would be the first-ever takeover to involve a bid by a dual-listed company for a dual-listed company. In essence there would have to be two separate bids. The first would be the U.K.-listed BHP Billiton PLC (formerly Billiton) for Rio Tinto Plc (formerly RTZ). The second would be Australia-listed BHP Billiton Ltd (formerly BHP) for Rio Tinto Ltd. (formerly CRA).
With bids taking place in two separate jurisdictions – the United Kingdom and Australia – a tremendous amount of cooperation between Australia's regulator, ASIC and the U.K. Takeover Panel would be required. The U.S. Securities and Exchange Commission would also have to be involved, because American investors own 20% of Rio. The bid would be further complicated by the fact that Rio Tinto PLC owns 37.5% of Rio Tinto Ltd.
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