Rio of­fers $3.9 bil­lion for Rivers­dale to get Africa re­serves

The Pak Banker - - Company & Boss News -

MEL­BOURNE: Rio Tinto Group, the world's third-biggest min­ing com­pany, of­fered A$3.9 bil­lion ($3.9 bil­lion) for Aus­tralian cok­ing coal de­vel­oper Rivers­dale Min­ing Ltd. to gain re­serves in Mozam­bique as de­mand rises from steel mills.

Rio of­fered A$16 a share, the London-based com­pany said to­day in a state­ment. Rivers­dale shares climbed 1.6 per­cent to close A$16.57 in Syd­ney, 3.6 per­cent more than Rio's of­fer, which was rec­om­mended by all of Rivers­dale's board, bar the di­rec­tor ap­pointed by Tata Steel Ltd., its largest share­holder.

Buy­ing Rivers­dale will raise Rio's re­serves of steel­mak­ing coal as de­mand climbs and mark a re­turn to ac­qui­si­tions af­ter its pur­chase of Alcan Inc. in 2007 sad­dled it with al­most $40 bil­lion of debt be­fore the global fi­nan­cial cri­sis. Coal deals in 2010 have more than dou­bled to $36 bil­lion af­ter im­ports by China, the biggest con­sumer, surged five­fold in 2009.

"They're un­der­weight cok­ing coal, so this was a clear gap in their port­fo­lio," said Prasad Patkar, who helps man­age about $1.8 bil­lion at Platy­pus As­set Man­age­ment Ltd. in Syd­ney. "Mozam­bique is re­garded as the fu­ture of met­al­lur­gi­cal coal, and they're get­ting a foothold there. Rio is back in M&A mode."

The of­fer is 13 per­cent higher than the A$14.10 Rivers­dale closed at on Dec. 3, the last trad­ing day be­fore it said Rio had of­fered A$3.5 bil­lion. Rivers­dale said Dec. 6 it had held talks with Rio on a pro­posal at A$15 a share. Rio closed at A$87.20 in Syd­ney. Rio is ad­vised by Macquarie Group Ltd. and Rivers­dale by UBS AG. A suc­cess­ful bid for con­trol will need the sup­port of at least one of Rivers­dale's ma­jor share­hold­ers, with the top-three in­vestors own­ing about 51 per­cent. These share­hold­ers, Tata Steel, Pass­port Cap­i­tal LLC and Cia. Siderur­gica Na­cional SA were kept in­formed dur­ing the talks with Rio, Rivers­dale Man­ag­ing Di­rec­tor Steve Mal­lyon said in a phone in­ter­view. "They haven't raised one ob­jec­tion and in fact, they have been pretty sup­port­ive," he said. The hold­ers, who are still con­sid­er­ing the of­fer, "are very con­ser­va­tive them­selves and Rio did need to con­vince them of what it would bring to the ta­ble," he said.

In­dia's Tata Steel holds a 24.2 per­cent stake as well as a 35 per­cent in­ter­est in Rivers­dale's Benga project in Mozam­bique, where ex­ports are sched­uled to start next year. Rivers­dale ended talks with Wuhan Iron & Steel Corp. on a po­ten­tial $800 mil­lion in­vest­ment by the Chi­nese steel­maker, Mal­lyon said.

Rio has se­cured 14.9 per­cent of Rivers­dale's shares in pre-bid agree­ments with some share­hold­ers, in­clud­ing se­nior ex­ec­u­tives and in­sti­tu­tional in­vestors. Naren­dra Ku­mar Misra, Tata's rep­re­sen­ta­tive on Rivers­dale's board, ab­stained from rec­om­mend­ing Rio's pro­posal, Rivers­dale said. Tata Steel's Vice Chair­man B. Muthu­ra­man de­clined to com­ment to­day.

In­dia asked In­ter­na­tional Coal Ven­tures Ltd., com­pris­ing state-run metal and en­ergy com­pa­nies, to con­sider bid­ding for Rivers­dale, Arup Roy Choud­hury, chair­man at In­dia's biggest power pro­ducer NTPC Ltd., said Dec. 14. The ven­ture may hire bankers to make an of­fer and may meet soon with them, Chair­man C.S. Verma said yes­ter­day.

"The fact that Rio hasn't been able to get any of Rivers­dale's ma­jor share­hold­ers across the line in­di­cates they are wait­ing for a bet­ter deal," Ben Pot­ter, a mar­ket strate­gist at IG Mar­kets Ltd. in Mel­bourne, said. "If the as­sets are at­trac­tive to Rio, then you can guar­an­tee other ma­jor play­ers are do­ing their due dili­gence. We'd be sur­prised if $16 per share was the win­ning bid."

Other po­ten­tial suit­ors in­clude Vale SA, the world's biggest iron ore ex­porter, which has op­er­a­tions in Mozam­bique, UBS AG said Dec.6 in a re­port. Vale, the world's biggest iron ore ex­porter, is build­ing the Moa­t­ize cok­ing coal mine in Mozam­bique at a cost of $1.7 bil­lion for the first stage. Rivers­dale has not had ap­proaches from any other com­pany, Rivers­dale's Mal­lyon said.

Tata Steel has been buy­ing Rivers­dale shares since the third quar­ter of 2008, ac­cord­ing to data com­piled by Bloomberg, when Rivers­dale shares were trad­ing at an av­er­age of A$9.19. Its most re­cent pur­chase was in the sec­ond quar­ter of this year when shares av­er­aged A$9.54. Cia. Siderur­gica Na­cional, Brazil's third-largest steel­maker, bought a 16.3 per­cent stake in Rivers­dale in Novem­ber 2009, pay­ing A$6.10 for each share. The Rio de Janeirobased com­pany now holds 13.2 per­cent af­ter sell­ing shares in the first quar­ter of 2010, ac­cord­ing to data com­piled by Bloomberg.

Rio is pay­ing 6.6 times the as­set value of Rivers­dale, ac­cord­ing to data com­piled by Bloomberg. That com­pares with the 1.9 times me­dian of 10 com­pa­ra­ble in­dus­try deals glob­ally in the past five years.

Global min­ing deals have more than dou­bled this year to $142 bil­lion, ac­cord­ing to data com­piled by Bloomberg. That's the high­est since 2007's $151 bil­lion. -Bloomberg

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