Riversdale shares climb as Rio lifts takeover offer price Sarah-Jane Tasker The Australian March 11, 2011 12:00AM
RIO Tinto looks set to settle for a majority interest in Riversdale Mining after it improved its $3.9 billion offer for the coal company to entice major investors to hand over control. The global giant yesterday said it would increase its offer from $16 a share to $16.50 a share, if it gained more than a 50 per cent interest in the Mozambique-focused company by March 23.
Rio said it would not increase its offer beyond that point unless there was a competing proposal.
Shares in the coal company were originally sold down following Rio's announcement, but gained once the revised offer was digested, sending Riversdale's shares 3.17 per cent higher to $15.61 at yesterday's close.
Industry insiders have suggested that Rio's sweetened offer was an attempt to gain the support of major shareholders, India's Tata Steel and Brazil's CSN, which between them hold 47 per cent of Riversdale.
Start of sidebar. Skip to end of sidebar. .End of sidebar. Return to start of sidebar. Riversdale managing director Steve Mallyon said the board continued to support Rio's offer and he warned investors that there was no competing offers on the table.
"It has been three months since they launched their offer and there has been no indication to us of any competing offer," Mr Mallyon said.
"Rio Tinto are a class act, and they can compress the development time of the project, delivering it quicker, and with less stress, than we could."
Mr Mallyon said while Riversdale could progress the project itself, it would have to go into debt to do so, adding that Rio was a perfect fit for the tier-one project.
"They are fundamentally very good operators," he said.
JPMorgan analyst Mark Busuttil said that, while Rio's 3 per cent rise in its offer price was not overly significant, it highlighted that the global major would not be held to ransom to buy the asset and would rather walk away than compete against itself. He added that Rio wanted control of the project and therefore the minimum acceptance clause was clearly very important.
"It is possible that from discussions with key shareholders, Rio now has a better understanding of the perceived value of the asset," Mr Busuttil said.
Rio would be content to settle for control of Riversdale, which insiders say was now possible with the improved offer.
Rio has about 19 per cent of the stock on pre-acceptances and it could gain another 10 per cent from Passport Capital and 5 per cent from hedge fund Samana.
Tata Steel, which already has an offtake agreement with Riversdale, could sell a share of its 27.1 per cent stake into Rio's offer, to give the major control, but still retain a significant interest in the stock. "The increase in the offer price from $16 to $16.50 gives Riversdale shareholders a highly attractive premium and now is the time for them to accept our recommended bid,"Rio Tinto Energy chief executive Doug Ritchie said.
"There has been no sign of a competing proposal in the 11 weeks since the bid was announced. The choice for Riversdale shareholders is clear: accept the $16 or $16.50 on offer or risk seeing their share price return to pre-bid levels. There is no question that Rio Tinto's expertise is crucial to overcoming the development challenges of Riversdale's projects."
RIV Price at posting:
$15.61 Sentiment: Buy Disclosure: Held
