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Rio Tinto, Mitsubishi Buy Coal & Allied

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Rio, Mitsubishi Bid A$1.49 Billion for Rest of Coal & Allied

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By Elisabeth Behrmann - Aug 7, 2011 8:30 PM ET

Rio, Mitsubishi Bid A$1.49 Billion for Rest of Coal & Allied

Eric Taylor/Bloomberg

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Rio Tinto Group, the world’s second-biggest mining company, and Mitsubishi Corp. (8058) offered A$1.49 billion ($1.55 billion) for the shares in Coal & Allied Industries Ltd. (CNA) they don’t own to take the coal miner private.

Rioand Mitsubishi, which own stakes of 75.7 percent and 10.2 percentrespectively, made an initial offer of A$122 a share, 34 percent morethan the Brisbane-based company’s closing price of A$91, Coal &Allied said today in a statement. The bid values Coal & Allied atA$10.6 billion, the company said.

Buying Coal & Allied will give London-based Rio and Mitsubishi full control of three coal mines in the Hunter Valleyin Australia’sNew South Wales state as prices surge. Perpetual Ltd., Coal &Allied’s third-largest shareholder, has indicated it supports the bid inthe absence of a higher offer, Rio said in a separate statement,meaning the companies have agreements for more than 90 percent of thetarget.

“The bid reflects the dynamic of the market that we’re in with lots of interest in coal assets,” Michael McCarthy,chief market strategist at CMC Markets in Sydney, said by phone.“Thisis an attempt to deliver a knock-out bid and one that is high enough forthe Coal & Allied board to recommend.”

Including Coal &Allied’s A$1.20 a share dividend, the offer values the target at 21.9percent more than its one-month volume-weighted average price, Rio Tintosaid. Coal & Allied had traded as high as A$130.10 this year onJan. 28, before closing at A$91 on Aug. 5.

Sector Premium

Pendingand completed takeovers in the coal sector totaled $11 billion in thesecond quarter this year as coal prices trade near record highs with anaverage premium of 39 percent, the most in at least 10 years, accordingto data compiled by Bloomberg.

Should the bid be successful, Riowill end up with 80 percent and Mitsubishi 20 percent of the target,Coal & Allied said. Perpetual now owns a 6.32 percent stake in thecompany, according to data compiled by Bloomberg. Coal & Allied isbeing advised by Greenhill Caliburn and Gilbert & Tobin.

“Theproposal response committee makes no recommendation to shareholders atthis stage other than that the Coal & Allied shareholders do notneed to do anything in relation to the indicative proposal,” Coal &Allied said.

Coal prices have surged on rising demand to feed power stations and steel mills in China, the world’s largest user of coal, and amid global production disruptions, including record flooding in Queensland.

The offer is also subject to Rio Tinto and Mitsubishi completing certain arrangements, Coal & Allied said.

To contact the reporter on this story: Elisabeth Behrmann in Sydney at [e-mail]

To contact the editor responsible for this story: Andrew Hobbs at [e-mail]