Australian (ASX) Stock Market Forum

BHP takeover of RIO

What effect will this have on the Aussie Resource Sector?

  • It will be huge!

    Votes: 46 42.6%

  • It will be positive, but not huge

    Votes: 36 33.3%

  • It won't have much of an effect

    Votes: 9 8.3%

  • Undecided

    Votes: 7 6.5%

  • I love lamp

    Votes: 10 9.3%
  • Total voters
    108
  • Poll closed .
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vishalt said:
With BHP making that sort of a bid, maybe Anglo American, Xstrata, Teck Cominco and CVRD could start making hostile bids for each other?

My strategy for tomorrow:

Okay this is how it works, BHP and Rio are hand-holders who catch up to each others price, Rio always outperforms BHP in the short-term but BHP starts steaming soon after.

If you're holding Rio, DUMP IT tomorrow and buy only a few more, incase BHP makes a higher offer.

I've checked the premiums now, Rio's P/E has SURGED to 22, while BHP is still below 15, BELOW average, there is a LOT of room to make money in BHP, its a ridiculous discount.

I'm dumping Rio tomorrow and looking to buy around 2000 shares of BHP.

And hey you never know, Rio could gang up Teck/Xstrata to make a hostile bid for BHP in return - I know that sounds crazy, but BHP making a bid for Rio was NOT conceivable itself in the first place.
Click to expand...

From what I have seen over the years in takeovers the first offer is rarely the best and/or last offer.. also the target companies shares invariably rise, usually to above the offer value in anticipation of a better offer, and the company bidding usually loses value, initially at least.
Cheers
........Kauri
 
I have to hand it to the management at BHP, they tried the quiet merger approach with Rio, knowing they were likely to fail, and now by announcing to the general market their failed attempt they will be putting pressure on the Rio board to at least discuss the offer from BHP or suffer the wrath of their own shareholders, who will feel there is some easy money to be made.

Don't think for one minute BHP expected to win Rio with the first offer, BHP would have a more realistic price of somewhere between $140-160 per share in mind.

All they have really done now is let everyone know RIO is in play and one way or another the deal will be done, with or without the help of the RIO board.
 
If BHP go for RIO as hard as RIO went for Alcan, 3:1 opening bid would surely go higher. Would the Brazilians make a bid? Chinese with their big sovereign fund? Would provide some competition.

Would the 3:1 ratio also apply in Australia or would there be a variation depending upon the relative values in UK and Oz?
 
Is anybody suprised that RIO's response came so quickly?

Normally the target company like has a meeting first or whatever and I've actually never seen or heard of a same day response.

By the time I heard the news of the offer last night I already knew about the response!

Any thoughts?? :confused:
 
Pager said:
The one thing that sticks out for me is that Insider trading is alive and well, i hope the rlevent authorities will look at yesterdays trading in RIO and who were buying big parcels of the stock.
Click to expand...

And yes, it is weird how RIO closed higher yesterday when everything else got absolutely hammered
 
Have FMG just jumped on the takeover wave? or is there something fundamental I'm missing. Does the rejection from RIO see BHP look elsewhere in the first instance or would thiss be after all avenues were closed? Market analysts help me out!
 
When BHP Limited and Billiton Plc merged in 2001, part of the medium-term plan was strategising a takeover of other assets like Xstrata and Rio Tinto.

In other words, this has always been on the cards but it's taken them a while to pull their finger out.
 
1128 [Dow Jones] Brazil's CVRD (RIO) and Australia's Fortescue Metals (FMG.AU) may benefit from possible divestments from a combined BHP (BHP.AU) and Rio Tinto (RIO.AU), says Campbell McComb, who manages A$230 million at Armytage Private in Melbourne. "Other mid-sized businesses that are cashed up and not leveraged on their balance sheet would have the ability to step in and buy assets that are forced to be sold," he says. "The combination makes sense with both companies in similar resources and in similar (geographic) areas," McComb says. He doesn't think BHP would have trouble raising cash to fund a bid, "looking at the combined group and the size and spread of assets it would have...in this market with resources and the predictions people have in the next two to three years, BHP could do it easily." BHP down 0.7% at A$42.98; Rio Tinto up 16% at A$131.20.(ABH)

1132 [Dow Jones] BHP Billiton (BHP.AU) adding cash sweetener for Rio Tinto (RIO.AU) bid would be difficult, given scale of acquisition, as any LBO debt would require massive liquidity, debt managers say. Citing global credit blow out, say BHP would be unable to source sufficent funding in Australia, need to fund offshore, but note widening spreads mean debt likely expensive. (EGC)

1138 [Dow Jones] BHP's (BHP.AU) bid for Rio Tinto (RIO.AU) reflects the company's outlook for world growth, profitability and commodity prices, says Hans Kunnen, who helps manage A$130 billion in equities at Colonial First State Investments. "It's a message from BHP the world growth story isn't over and commodities cycle will continue for a while," says Kunnen, who holds shares in both companies. "BHP wants to profit from that and this is one of the ways forward," he says. If BHP did acquire Rio Tinto "it won't put it the driving seat" to demand higher commodity prices "but it will lift its bargaining power," Kunnen says. (ABH)

1146 [Dow Jones] Biggest threat to BHP Billiton (BHP.AU) tilt at Rio Tinto (RIO.AU) is Rio Tinto "doing a WMC Resources" and spin off businesses to create shareholder value, says ANZ analyst Mark Pervan. Rio Tinto's iron ore business as separate entity would represent "huge value." Discounts counter bids from other large caps as unlikely given size of the deal, antitrust issues on iron ore for CVRD (RIO). Adds competition issue not insurmountable hurdle, since BHP/Rio Tinto would be largest but not overly dominant producer of iron ore, copper, aluminum, thermal coal. (EFB)

1223 [Dow Jones] Rio Tinto (RIO.AU) up 16% at A$131.60, fades from record high of A$138.10 as many traders who bought on the takeover rumor recently are taking profits. "It's just going to take so long," says senior trader. "You are best to leave it alone and think about it later." But arbs providing good support on dips toward A$130.00. Three BHP for one RIO should be the floor, currently A$128.67. Rio bid is attracting plenty of demand for other resource stocks, with Fortescue (FMG.AU) up 15%, Alumina (AWC.AU) up 5.9%, Zinifex (ZFX.AU) up 5.1%, Oxiana (OXR.AU) up 3.9%, Oil Search (OSH.AU) up 4.1%. (DWR)
 
sassa said:
Just read this article on the "proposed" merger of BHP and Rio Tinto.Am particularly interested if anybody knows of any regulatory issues that would stop the takeover and reasons why the government might use its National Interest Powers to also prevent its occurrence.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aAc82gy13pMo&refer=home
Click to expand...
I don't think the Gov has any case in point here. BHP and RIO are international companies and there is no national competition/soverienty issues to deconflict. The only reason the Gov would be looking at it would be to make themselves feel important. Although, what would I know. :confused:
 
kennas said:
I don't think the Gov has any case in point here. BHP and RIO are international companies and there is no national competition/soverienty issues to deconflict. The only reason the Gov would be looking at it would be to make themselves feel important. Although, what would I know. :confused:
Click to expand...

Hey Kenna,

I disagree, when BHP merged with Billiton there were alot of issues re Foreign Policy etc,

The only way Aus govt let merger go through was for BHP to have its head office stay in Melb and the registry to stay in Aus,

So I'm sure they will look at it
 
Pager said:
The one thing that sticks out for me is that Insider trading is alive and well, i hope the rlevent authorities will look at yesterdays trading in RIO and who were buying big parcels of the stock.
Click to expand...
Couldn't agree more, mate! :)

I suggested the same thing in another thread last night when I heard the news, and when I heard the announcement, it kind of stood out to me why RIO was up. Clearly there was something going on because, if you actually went through the trades, you could see it was large cap investing and not just "mum and dad" investors pushing up the price.

There clearly should be an investigation into what happened, if no-one is guilty of anything then there should be no reason to hide and not investigate.
 
Hang on a sec.

Does this fit the definition of a takeover or a merger? If it is 3 for 1, no actual cash is being transferred. Its just a conversion, nothing is being sold.

Takeover is fancy word which is overused to sell news stories.
(and make your asf post attract more attention, ie. you dont just have big news, you have really big news)

RIO has exceptional management, in a takeover you would expect them all to vanish once the deal is done as they have bad management, which is why a takeover is made, the takeover party feels they have better managment to better make use of the targets assets. In a merger it will be a mix of bhp and rio management who can both make better use of each others assets.

It would be no different to rio approaching bhp and saying 'i will give you 1 rio share for every 3 of your bhp shares'. In any merger, one party has to make the first approach. ie, the phone call, letter.

In a merger your would expect the combined value of both companies to increase, which is what happened today.

This fits my definition of merger. Any thoughts. Im happy for us to discuss the difference between a takeover and a merger.
 
A comment in The Times tonight-

In rejecting the proposal, Rio said it had given it careful consideration but “concluded that it significantly undervalues Rio Tinto and its prospects”. One person with knowledge of the talks said the offer was “a million miles away” from one that Rio would contemplate. “What they have put forward is a skinny premium . . . it’s a long way away from the kind of value that would be sensible.”
 
Kauri said:
From what I have seen over the years in takeovers the first offer is rarely the best and/or last offer.. also the target companies shares invariably rise, usually to above the offer value in anticipation of a better offer, and the company bidding usually loses value, initially at least.
Cheers
........Kauri
Click to expand...

Reading your above analysis,is it unusual for both BHP and Rio shares to be both trading higher on the London Exchange tonight?
 

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