Rio Tinto, Mitsubishi make offer for Coal & Allied
RIO Tinto and Japan's Mitsubishi Corp have offered to pay $122 per share to buy out minority investors in Coal & Allied Industries, in an indicative offer that values the Australian coal miner at $10.6 billion.
The joint bid for Australia's sixth-largest coal miner by output is the latest sign that competition for global coal resources is accelerating. Australia's stable political system and close proximity to Asian markets like China and India, where coal demand is booming, is making domestic mines especially attractive.
Peabody Energy and ArcelorMittal early this month launched a $4.7bn bid for Macarthur Coal, which is the world's biggest producer of a low-cost variety of coking coal used in steelmaking. A month earlier, Xstrata offered around $147 million for Canada's First Coal Corp, which holds coking coal exploration licenses in Canada.
Rio and Mitsubishi would end up with stakes of 80 per cent and 20 per cent, respectively, in Coal & Allied if the offer succeeds. The two companies own 75.7 per cent and 10.2 per cent, respectively, of the miner operating in the Hunter Valley of New South Wales
Fund manager Perpetual -- the only other major shareholder, with 6.3 per cent of the stock -- said it would support the bid.
"We have to determine whether the price is fair, but in the absence of a superior proposal this exceeds our valuation of net present value," James Bruce, the fund manager's resources portfolio manager, told Dow Jones Newswires.
"We would be seeking the independent directors to look at distributing the franking credits to the fullest extent possible."
Net present value is a method of valuing companies which calculates the current value of future cash flows, while franking credits are distributed by Australian companies to ensure shareholders are recompensed for the tax on their dividends.
Coal & Allied said it received the "incomplete, non-binding, conditional and indicative proposal" from Rio on Saturday. "CNA gives no assurances that the indicative proposal will lead to a takeover offer being made," the company said.
In a separate notice, Rio said shareholders would also retain a dividend due to be paid on August 26, meaning the total cash amount would come to $123.20 per share.
It has entered into a standstill agreement with Mitsubishi's Australian subsidiary, Mitsubishi Development Pty Ltd, which would make the offer. The agreement would prevent either company acquiring additional shares in Coal & Allied for the next two months.
During 2010, Coal & Allied sold 18.7 million tonnes of thermal coal and semi-soft coking coal from its Mount Thorley, Warkworth, Bengalla, and Hunter Valley mines.
