leveraged buyout, page-7

re: bhp may report record second half profit on pr
LONDON MARKETS: BHP Billiton, Rio Tinto Rise As Broker Says Could Be Targets



By Steve Goldstein

The world's two top miners, BHP Billiton and Rio Tinto, rose in London trading on Tuesday as a broker suggested that either one could be a leveraged buyout target.

The note, from Citigroup, didn't say such a move was likely -- a leveraged buyout of either BHP Billiton's (BHP) market capitalization of around $130 billion, and Rio Tinto (RTP) , worth closer to $60 billion, would be the biggest ever.

But Heath Jansen, an analyst at Citigroup, nonetheless calculates that the low level of financial gearing employed by the giants and the unprecedented depth and breadth of debt capital markets could make such a deal possible.

"As a sector, mining has many of the criteria valued by LBO firms -- strong cash flows, falling capital expenditure and low levels of leverage. The financial leverage for the mining sector has reduced from an average of 1.3 times net debt to EBITDA in 2003 to around 0.6 times in 2005 and we expect it to go negative in 2006 -- this compares with a potential leverage, in today's debt markets, of up to 4 times," he said.

The note comes a day ahead of BHP Billiton's first-half earnings, in which the miner could announce the buying back of up to $3 billion in shares.

"The inactivity on cash usage or disappointment on delivery is increasingly likely to be punished by poor share price performance," Jansen warned.

BHP Billiton rose 1.1% and Rio Tinto rose 0.8%.

More broadly, the FTSE 100 indexrose 0.2%, or 10.7 points, at 5,926.00. European stock markets also edged higher.

The pound was flat at $1.8906 vs. the dollar.