massive buyback, page-9

This seems a reasonably easy explanation as to what is happenning and it is from McQuarie


Rio Tinto (RIO, Outperform, Price 11 Aug 10 A$69.82/ GBP32.56)


Rio Tinto (RIO) has announced an internal buy-back by Rio Tinto Ltd of all its remaining cross-held shares from Rio Tinto plc (around US$12bn, or around 28% of Ltd). This is expected to occur in two tranches with the first undertaken this month (US$9.2bn) and the remainder likely to be later this year.
In First Half 2010, the lion's share of Rio Tinto's cashflow was generated within the Ltd structure (the Pilbara iron ore assets clearly predominant), and this is expected to continue (on our forecasts) for at least the next few years.
Within the Rio Tinto DLC, the internal buy-back process is a tax-efficient method of moving cash from the Ltd structure to the plc one (and has been done previously, on a smaller scale).
There should be no consolidated financial impact from the internal buy-back. The cash exchanged stays within the DLC structure, the cross-held shares to be cancelled are already excluded for unit analysis purposes, and there should be no index weight implications (given indices generally focus on free float).
Why do it then? If Rio Tinto wanted to make a cash acquisition from the plc structure, or launch a share buyback on the plc line, then it would require sufficient cash within the plc to achieve that. Elimination of the cross-holding also has the qualitative benefit of further simplifying the Rio Tinto DLC structure.
Current valuation support (both fundamental and relative) for Rio Tinto, in our view, remains strong at around 8x Calendar Year 2011E earnings and a 25-30% discount to net present value. We maintain our Outperform rating and A$92 per share (ps) price target.

Regards
Golfnut