Rio Tinto raises Riversdale bid to $3.9 billion

Rio Tinto Group, the world’s second-largest mining company, raised its bid for Riversdale Mining by 3 per cent to A$3.9 billion ($3.9 billion) as share purchases by steelmakers threaten to scuttle the deal.

“The choice for Riversdale shareholders is clear — accept the $16 or $16.50 on offer or risk seeing their share price return to pre-bid levels,” Doug Ritchie, chief executive officer of Rio’s energy unit, said in the statement. Rio will pay A$16.50 a share, 9 per cent more than Riversdale’s close yesterday, should more than half its shareholders accept, Rio said.

Gaining control of Riversdale’s Mozambican projects would boost Rio’s reserves of steelmaking coal as prices double. Rio says it will settle for a controlling stake as Sydney-based Riversdale’s two biggest holders, Mumbai-based Tata Steel and Cia Siderurgica Nacional, increased their stakes to strengthen their hand in negotiations for supply contracts.

“Rio are showing some goodwill to other parties who may be less convinced about Rio entering the fray,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital in Melbourne, adding that he expects Rio to get 50 per cent. “This is a sensible move without betting the company or paying an extravagant price in the hope the major parties involved can find a common ground.”

Shares decline
Riversdale shares gained 3.2 per cent to A$15.61 at the close in 4.10 pm Sydney time close on the Australian stock exchange. That’s 5.4 per cent less than Rio’s latest offer.

“What that’s telling us up to now is there is no competing offer and we have had no indication of any alternative offer,” Riversdale Chief Executive Officer Steve Mallyon told Rishaad Salamat on Bloomberg Television’s “On the Move Asia” programme today. “I believe Rio Tinto will be successful.”

Rio fell as much as 3.3 per cent to 3,951.5 pence in London, the lowest since October 19, before recovering to trade at 3,963 pence at 10.22 am local time. The company’s Sydney-traded shares earlier fell 2.4 per cent to A$80.42 and its credit-default swaps were little changed at 82 basis points at 2.33 pm local time, according to Deutsche Bank.

At the increased offer, London-based Rio is paying 6.9 times the asset value of Riversdale, according to data compiled by Bloomberg. That compares with the 1.6 times median of 10 comparable industry deals globally in the past five years.