BHP Courting Rio Tinto
Updated from 11:06 a.m. EST
Australia's massive diversified miner
BHP Billiton
(BHP) - Get BHP Group Limited American Depositary Shares (Each representing two) Report
has offered to take over London-based
Rio Tinto
(RTP) - Get Reinvent Technology Partners Class A Report
, but the overture was quickly rejected.
BHP says it wrote a letter to Rio Tinto "outlining a proposal in relation to a potential combination ... incorporating a premium."
Rio Tinto said in a statement on its Web site that it wasn't interested in BHP's terms. Under the proposal, Rio Tinto said, its stockholders would receive three shares of BHP for each share of Rio they hold. That would take the value of the deal well past $100 billion.
BHP indicated that it wasn't swayed by Rio Tinto's brushoff, saying it "intends to continue to seek an opportunity to meet and discuss its proposal with Rio Tinto."
The mining arena has seen a host of deals and merger chatter in the past couple of years, and Rio Tinto itself is working on the acquisition of
Alcan
(AL) - Get Air Lease Corporation Class A Report
. At the same time, investors are speculating about who in the mining patch is going to be taken out next.
TheStreet Recommends
Chuck Bradford, a stock analyst at Soleil Securities in New York, says although such a move by BHP has been rumored for a while, it probably won't go through. At least part of the problem will be antitrust restrictions in Australia, which, he says, may mean the combined firm would need to sell certain assets.
A BHP-Rio Tinto combination, if realized, would create a truly massive company. Measured by market capitalization, BHP is already the largest miner in the world, worth $228 billion recently. Rio Tinto's market value was around $115 billion at Wednesday's close.
By contrast, Brazil's iron-ore giant
Companhia Vale do Rio Doce
(RIO) - Get Rio Tinto Plc Report
recently commanded a capitalization of $173 billion. CVRD was rumored to have wanted Alcan, and
Alcoa
(AA) - Get Alcoa Corporation Report
pursued it, as well.
One way Rio Tinto may be able to fend off the unwelcome advances of BHP, or even CVRD, would be to acquire another company, says Bradford. A likely target would be
Freeport-McMoRan Copper & Gold
(FCX) - Get Freeport-McMoRan Inc. Report
.
Rio Tinto and Freeport already have joint ownership of the Grasberg mine in Indonesia, and Freeport is looking a lot less risky now that it has a more diversified asset base following the firm's absorption of Phelps Dodge.
Strong cash flows from a buoyant copper market have also allowed Freeport to retire some of the debt it took on when it purchased Phelps.
The news was sending shares of Rio Tinto up 23% to $440.20, while BHP lost 4.2% to $76.98. CVRD rallied 3.1% to $36.96.
