and now it gets interesting

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And now it gets interesting…

Rebecca Lawson
Wednesday, 6 February 2008

BHP Billiton may be chuffed with its new, increased offer for rival Rio Tinto but speculation is brewing that the takeover target's newest major shareholder, Chinalco, is preparing its own bid.

Citing unnamed sources, the United Kingdom's Times Online reported that Chinalco and its partner Alcoa – which together bought a 9% stake in Rio late last week – were likely to intervene and counterbid if BHP raised its offer.

BHP this morning announced a 3.4-for-one offer for Rio and left the door open to a possible higher offer, a move that some analysts say is enough to get Rio to the table.

"They can't brush this aside and say it's well out of the ball park, forget it, we're not interested," BBY resources analyst John Veldhuizen told Dow Jones Newswire.

"It's on the table, they'll consider it, probably say it's unfair – as any corporate would. But to not look at all the long-term benefits this could achieve would be naïve."

ABN Amro analyst Warren Edney told DJN that the ball is in Rio's court, with the takeover target having the chance to increase the offer after BHP said the bid was based on all the information available to it.

If the bid is successful, the merger would create a mining behemoth worth over $300 billion, an outcome China might not be able to stomach.

Times Online reported its sources as saying China decided to make its move because it could not tolerate a combined BHP-Rio having control of iron ore.

"They are not going to sit back and let that happen. BHP has to see that its largest customer has a limitless amount of money and this is a matter of the highest political importance for China," a source told the newswire.

While China may have a lot of financial clout, a takeover of Rio was not on Chinalco's agenda, according to an Australia-based spokesperson for the company.

With much of the analyst and media focus on the BHP-Rio tie-up, investors had their eyes on other news from BHP, which reported a 2.4% drop in profit attributable to members of the group to $US6.017 billion ($A6.71 billion).

Shares in the mining giant closed down $2.99 or 7.54% to $36.66, weighing down the S&P-ASX 200 index which took the lead of other indices around the world and dropped 3.17% to its lowest close in nine trading days of 5609.4 points.

Overnight Wall Street fell sharply, with the Dow Jones index shedding 2.3% to 12,265.13pts and the S&P 500 weakened 3.2% to 1336.64 on the back of poorer than expected non-manufacturing data.

News of the increased bid gave Rio shares a lift, which climbed 2.4% to an intraday high of $130.35 before the weight of the broader market prompted its shares to close down 21c (0.16%) to $127.14.

Other notable losses from the biggish side of town were Summit Resources, which lost 37.5c (16.45%) to $1.905, Mincor Resources shed 22c (7.2%) to $2.84, Perilya dropped 21.5c (11.5%) to $1.65 and Kingsgate dipped 45c (10.5%) to $3.82.

Weaker commodity prices also did their bit to keep most resource stocks in the red today. For every one company that ended in positive territory, there were just over four that couldn't quite make it.

Leading the downward charge was View Resources which closed down 29.7% to 13c after it announced it was unlikely to meet the 30,000oz target for the March quarter. Bushveld Platinum lost 2.9c (29%) to 7.1c and Blina Diamonds shed 4c (20%) to 16c.

On the upward charge was Empire Resources which jumped 36.4% to 4c, Continental Capital added 2.5c (25%) to 12.5c and Mindax rose 2.5c (23.8%) to 13c.