BHP stalks Rio in $400bn deal


RIO Tinto has rejected a takeover approach from arch-rival BHP Billiton - a union that would create a $400 billion mining behemoth.

BHP last night revealed it "recently" wrote to the Rio Tinto board with an outline plan for a merger. The company said it had again written to Rio Tinto to try to arrange a meeting, confirming months of escalating rumours about an approach for the rival miner.

"The boards of Rio Tinto have given the proposal careful consideration and concluded that it significantly undervalues Rio Tinto and its prospects," Rio said in a separate statement last night. "The boards have unanimously rejected the proposal as not being in the best interests of shareholders."

BHP, which was created through the 2001 merger of Australia's BHP and South Africa's Billiton, is already the world's biggest mining company with a market capitalisation of $235billion.

Rio Tinto, which also has its origins in Australia, is worth about $166 billion and like BHP, is listed on both the Australian and London stock exchanges.

A combined company would challenge Brazil's Cia Vale do Rio Doce as the world's largest supplier of iron ore as rising demand in China pushes prices of the raw material used in steelmaking to a record.

BHP would also gain access to more than 15 million tons of copper and 4.3 million tons of aluminum. Rio Tinto's annual profit rose 43 per cent to $7.44billion last year.

"Rio is a massive cash generator," Joe Youssef, a senior adviser at Macquarie Equities in Sydney, said before last night's statement. "You can see why it's an attractive proposition based on its cash flows."

Rio Tinto shares rose to as high as 53.99, a record, and traded up 20 per cent at 52.40 in late morning trading in London. BHP's London-based shares were 14p higher at 17.97. Last night's announcement was made after the close of trading in Australia.

Bid talk surrounded Rio Tinto from the opening of trading in London last night, with BHP always viewed as the favoured predator.

Dealers said that the talk was being triggered by the approaching completion today of Rio Tinto's takeover of Canadian aluminium company Alcan, which would make a clean target for BHP.

Rio Tinto said last night it would compulsorily acquire the outstanding shares Alcan, having reached a 95.8 per cent ownership level through its $US38.1 billion offer.

The world's third-largest mining group said it was now entitled to acquire all the remaining Alcan shares by way of compulsory acquisition.

The offer was due to expire yesterday but analysts were speculating on further consolidation in the resources sector, which has been buoyed by record base and precious metal prices.

Until last night, neither BHP or Rio Tinto had commented on the takeover speculation. BHP has grown by acquisition, in 2005 buying WMC Resources to take control of the massive Olympic Dam copper, gold and uranium mine in outback South Australia.

Rio Tinto launched the offer for Alcan in July, offering the Canadian group's shareholders $US101 a share in a recommended deal. The takeover will see Rio Tinto overtake Russian group United Company Rusal as as the world's largest producer of aluminium.

On the Australian Stock Exchange yesterday, BHP led all commodity stocks lower after oil and metals prices declined on Wednesday night. Oil surrendered a record high just short of the $US100 a barrel mark.

BHP, Australia's biggest oil producer, fell $1.62, or 3.6 per cent, to $43.24.

A measure of six metals traded on the London Metal Exchange, including copper and nickel, dropped 1.8 per cent yesterday. Copper lost 2.2 per cent, nickel fell 0.3 per cent, and zinc declined 2.1per cent.

The S&P/ASX 200 index slid 170.80, or 2.6 per cent, to 6521.60 at the close of trading, its biggest drop since August 15.(theaustralian)

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