December 03, 2008

BHPB bid for Rio –Rio challenged to prove that bid is low

Reuters reported that BHP Billiton has challenged bid target Rio Tinto to give financial details to support its arguments that a spurned all share offer worth USD 135 billion is too low.

Mr Alberto Calderon COO of BHPB told Reuters in an interview that "How can they justify turning away a 45% premium and synergy share that we have offered them? What is it they have that they are going to outperform BHP Billiton?"

He said that "They need to put numbers to that. But they have not done it. They just say 'It doesn't come close' and evade the question of relative value."

He added that “The question of relative value was key to the argument since BHP's offer was based only on shares, not cash.”

Mr Calderon said BHP has strong exposure to the underlying carbon steel market through its production of various products needed in the sector. He said "We are longer on carbon steel because of the combination of coking coal and manganese and iron ore, so we will slightly outperform Rio Tinto if the steel market explodes.”

He stressed that "To really be able to say that they have a better proposition, they have to outperform BHP by more than the value Rio shareholders would get from the significant uplift in their share of the new company and the available synergies that we are offering. The market has valued that uplift at over USD 40 billion. That's a hurdle they haven't addressed."

Mr Calderon added that "We believe we have a strong economic argument of why this merger would not harm competition. We have studied this, we have done our homework."

Rio Tinto has repeatedly said BHP's hostile bid of 3.4 of its shares for each Rio share is ballparks away from a fair offer.