BHP Billiton's rebuffed offer to buy rival Rio Tinto is boosting speculation that other big commodity companies will be swept up in a wave of consolidation fueled by strong demand and high metals prices that have raised cash reserves of potential buyers and increased the urgency to strike first.
Shortly after BHP announced its $142 billion offer for Rio Tinto on Thursday, the stocks of several commodity producers, including Alcoa Inc., Anglo-Swiss miner Xstrata PLC, and Freeport-McMoRan Copper & Gold Inc., rose as investors began trying to divine likely targets. Many industry observers and commodity companies expect demand for raw materials to remain strong for several years, thanks to China's rapid industrialization. Moreover, the run-up in prices over the past few years would allow companies to quickly pay down debt incurred in a buyout. "I personally don't think we are anywhere near the top of the consolidation cycle," said Jeremy Gray, a London-based metals and mining analyst for Credit Suisse.Xstrata admits it is on the lookout for acquisitions, but says the field is becoming more crowded with potential buyers....MORE