Feb 7 (Bloomberg)--BHP Billiton Ltd., the world's largest mining company, shouldn't raise its hostile $135 billion takeover bid for rival Rio Tinto Group, said Midas Management Corp. and Wallace Funds Management.
“It can't increase the offer without diluting the value of its own assets,” said Michael Birch, who helps manage the equivalent of $140 million at Wallace in Sydney, including Rio Tinto and BHP Billiton shares. “It doesn't make sense to pay more for the Rio assets.”
Rio, based in London, yesterday rejected BHP's sweetened bid saying it significantly undervalues the world's third-largest mining company. BHP Chief Executive Officer Marius Kloppers, who is borrowing a record $55 billion, raised the bid 13 percent five days after Aluminum Corp. of China bought a blocking stake in Rio.
“I'd walk away at this point,” Midas President Tom Winmill, who owns shares in BHP, said yesterday in New York, citing the strain on the company's balance sheet. “Don't raise your offer.”
Rio fell 14 cents to A$127 at the 4:10 p.m. close on the Australian Stock Exchange. That's 1.2 percent more than the per- share value of Melbourne-based BHP's bid after the stock rose 26 cents, or 0.7 percent, to A$36.92.
The combination of BHP and Rio would create the world's biggest producer of copper and vie with Brazil's Cia. Vale do Rio Doce as the largest supplier of iron ore. Kloppers said yesterday the company would be able to ship more products, faster to China.
Cost Savings
BHP yesterday raised its all-stock offer, which would be the world's largest mining takeover, to 3.4 shares for every one of Rio's. Kloppers has pledged to spend $30 billion on a share buyback and generate $3.7 billion in cost savings and revenue gains by buying Rio.
“There's no doubt the BHP assets are high quality and probably higher quality assets than Rio's,” Wallace's Birch said. His Wallace Opportunities Fund has returned 3.9 percent in the past 12 months, compared with a 5.2 percent decline in the Australian benchmark S&P/ASX 200 Index. |
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A bid at 3.4 shares for one would give BHP holders an 8.3 percent gain in share value, Austock Securities Ltd. resources analyst Tim Gerrard said in a report. A 3.75-for-one share offer together with an A$11 a share cash payment wouldn't deliver an immediate gain for BHP holders, he said.
“For BHP to offer higher, you have to justify to your shareholders why are you are giving more value away,” Shaun Manuell, who helps manage A$1.4 billion ($1.25 billion,) including both Rio and BHP at Equity Trustees Ltd., said by phone from Melbourne.
First and Only
“This is our first and only offer,” Kloppers said in a media teleconference yesterday. “We absolutely want full control of this company,” Kloppers, 45, said. He wouldn't say whether it would be the final offer, a declaration that would prohibit him from raising the bid.
BHP may have to increase the offer up to 4.25-for-one share to win agreement from Rio, Chuck Bradford, an analyst at Soleil Securities Corp., said yesterday in New York. The bid values Rio at 13.6 times earnings before interest and tax, compared with the 13.7 times that Rio paid for Alcan Inc. last year.
“There's still room for BHP to move higher,” Ric Ronge, who helps manage A$1.9 billion at Pengana Capital, said today by phone from Melbourne. “They can go to 3.5 or 3.6 without it becoming a value-destroying deal.”
Goldman Sachs Group Inc., Citigroup Inc. and five other banks agreed to provide BHP with the $55 billion loan, the company said yesterday. In December, BHP indicated it was seeking a $70 billion loan, ABN Amro Holding NV said in a report dated Feb. 6.
The reduction in the loan size “reflects the tightening in the credit market, the risk that lenders are willing to take and BHP's firm commitment to maintain a single A credit rating,” analysts led by Warren Edney said in the report.
To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net
Last Updated: February 7, 2008 01:00 EST |
Prospectus
