The race for Riversdale Mining may be about to begin after Rio Tinto officially lobbed its $3.9 billion bid for the miner. With a bevy of rival suitor waiting on the sidelines the real twist in the tale could from India and Riversdales largest shareholder Tata Steel.
Rio Tinto, Riversdale Mining
Rio Tinto is officially back in the M&A game with the mining giant lobbing a $3.9 billion takeover offer for Mozambique-focused coal miner Riversdale Mining. Rumours of a Rio tilt had been doing the rounds since the beginning of the month and after a substantial amount of deliberation Rio has finally shown its hand. The bid has been broadly welcomed by Riversdales board, which is understandable given that the suitor has already sweetened the bid from an initial $15 a share to $16 a share and the tie-up with Rio gives the target protection against the risks and uncertainty involved in developing its coal projects. However as mentioned earlier in this column, this may not be a straightforward affair for Rio which needs to placate Riversdales three major shareholders Indias Tata Steel, Brazilian steelmaker CSN and US investment firm Passport Capital. These three parties together hold over a 50 per cent stake in Riversdale and there is a good chance that they are not going to bite at the $16 a share offer price. Riversdale shares pushed up 1.66 per cent higher to $16.57 yesterday which indicates that the market is certainly expecting a bidding war for the target. Theres no dearth of prospective suitors with the likes of Anglo American, Xstrata and Vale all capable of taking on Rio but perhaps the most interesting twist in the tale could come from India.
Interestingly, the one person on Riversdales board who failed to support Rios bid yesterday was the representative installed by Tata Steel, N K Mishra, who is Tata Steel's vice-president and mergers and acquisitions group head. Tata owns 24 per cent of the company, a 35 per cent stake in Riversdale's Benga project and has an entitlement to 40 per cent of Benga's future output. The steelmaker is being touted as a potential rival bidder for Riversdale but that may not be the case. Tatas main priority is securing supply for its extensive steel operations in Europe, which it picked up in 2007 through the $US12 billion acquisition of Corus Group. Any move to gain control of Riversdale could cost Tata around $1 billion dollars but alternatively it could also opt to sell part of its 24 per cent stake, which is valued at over $840 million at current bid price, to Rio and book a hefty profit. For the time being Tata is keeping its cards close to its chest but it could put the squeeze on Rio to lift its bid higher. Meanwhile, the Indian consortium International Coal Ventures Ltd (ICVL), made up of Coal India, Rashtriya Ispat Nigam Ltd (RINL), power producer NTPC, iron ore miner NMDC and the Steel Authority of India (SAIL) has reportedly appointed Citigroup to conduct due diligence on Riversdale and Reuters reports that a decision on a bid will be made in two weeks time. Whatever emerges in the new year the one thing thats certain is that the race for Riversdale is very much in the early stages and Rio may have to shell out more to seal its first big buy since its ill-timed Alcan buy in 2007.
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RIV Price at posting:
$16.70 Sentiment: LT Buy Disclosure: Held
