The world's largest mining company made a bold $142 billion bid for one of its biggest rivals, in the latest sign of how historic global demand for commodities from iron to gold is consolidating control of the earth's natural resources.
The move by BHP Billiton was rebuffed by its target, Rio Tinto. But BHP signaled it will step up its pursuit and might sweeten its terms. The proposed deal would be the second-largest ever by value after Vodafone PLC's $172 billion acquisition of Mannesmann AG in 1999.
The bid marks a showdown of two new, aggressive chief executives. BHP's 45-year-old chief, Marius Kloppers, started in the top job just a month ago. Rio Tinto Chief Executive Tom Albanese was in only his second month on the job when he made a strike in July for Canadian aluminum giant Alcan Inc. Rio Tinto completed the final phase of the Alcan acquisition yesterday -- just as Mr. Kloppers was making his announcement.
The mining industry has undergone a wave of mergers in recent years as commodity prices have risen and the cost of extracting and shipping metals has skyrocketed. Fast growth in China and elsewhere is stoking demand for copper, iron ore and aluminum. Meanwhile, bottlenecks at ports and railroads are constricting supply. A merger could allow a combined BHP-Rio Tinto to better manage logistics of getting products from mines to factories. The deal is likely to face antitrust scrutiny in the U.S. and Europe.
The combined company's operations would span the globe from the outback of Australia to Madagascar to Alaska. It would become the world's largest producer of copper and aluminum, according to CRU, a United Kingdom research firm. It would also be the second-largest provider of iron ore, a key steel making ingredient, behind Brazil's Companhia Vale do Rio Doce, according to Raw Materials Group, a research firm in Sweden. It would also sell diamonds, uranium and coal. It would have more than $70 billion in annual sales and about 115,000 employees.
Rumors of a BHP takeover of Rio have been swirling since September, after Alcan shareholders approved its sale to Rio, and Rio shares have climbed steadily ever since.
Yesterday, Rio shares in London surged 22% to £52.96 ($111.29), about 7% above BHP's proposed bid price. BHP sank 5.7% in London trading to £16.56. Other miners also rose sharply on the news. Anglo American PLC shares shot up 15% in London.
"It's going to be hard for Rio Tinto to remain independent. You saw a huge reaction in the market today," said Wayne Atwell, a former Morgan Stanley mining analyst who now heads a hedge fund focusing on natural resources. "The pressure's now on for Rio Tinto to either find a new partner or come to terms with BHP."...MUCH MORE