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Rio Offers $3.9 Billion for Riversdale to Get Afri

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By Rebecca Keenan and Shani Raja - Dec 23, 2010 2:01 AM ET
https://www.bloomberg.com/news/2010-12-23/rio-raises-riversdale-offer-to-a-16-a-share-valuing-firm-at-3-9-billion.html
Rio Tinto Group, the world’s third- biggest mining company, offered A$3.9 billion ($3.9 billion) for Australian coking coal developer Riversdale Mining Ltd. to gain reserves in Mozambique, splitting Riversdale's board.
Rio offered A$16 a share, the London-based company said today in a statement. Riversdale shares climbed 1.6 percent to close A$16.57 in Sydney, 3.6 percent more than Rio’s offer, which was recommended by all of Riversdale’s board, bar the director appointed by Tata Steel Ltd., its largest shareholder.
Buying Riversdale will raise Rio’s reserves of steelmaking coal as demand climbs and mark a return to acquisitions after itspurchase of Alcan Inc. in 2007 saddled it with almost $40 billion of debt before the global financial crisis. Coal deals in 2010 have more than doubled to $36 billion after imports by China, the biggest consumer, surged fivefold in 2009.
“They’re underweight coking coal, so this was a clear gap in their portfolio,” said Prasad Patkar, who helps manage about $1.8 billion at Platypus Asset Management Ltd. in Sydney. “Mozambique is regarded as the future of metallurgical coal, and they’re getting a foothold there. Rio is back in M&A mode.”
The offer is 13 percent higher than the A$14.10 Riversdale closed at on Dec. 3, the last trading day before it said Rio had offered A$3.5 billion. Riversdale said Dec. 6 it had held talks with Rio on a proposal at A$15 a share. Rio closed at A$87.20 in Sydney. Rio is advised by Macquarie Group Ltd. and Riversdale by UBS AG.
No Objection
A successful bid for control will need the support of at least one of Riversdale’s majorshareholders, with the top-three investors owning about 51 percent. These shareholders, Tata Steel, Passport Capital LLC and Cia. Siderurgica Nacional SA were kept informed during the talks with Rio, Riversdale Managing Director Steve Mallyon said in a phone interview.
“They haven’t raised one objection and in fact, they have been pretty supportive,” he said. The holders, who are still considering the offer, “are very conservative themselves and Rio did need to convince them of what it would bring to the table,” he said.
India’s Tata Steel holds a 24.2 percent stake as well as a 35 percent interest in Riversdale’s Benga project in Mozambique, where exports are scheduled to start next year. Riversdale ended talks with Wuhan Iron & Steel Corp. on a potential $800 million investment by the Chinese steelmaker, Mallyon said.
Pre-Bid Accord
Rio has secured 14.9 percent of Riversdale’s shares in pre- bid agreements with some shareholders, including senior executives and institutional investors. Narendra Kumar Misra, Tata’s representative on Riversdale’s board, abstained from recommending Rio’s proposal, Riversdale said. Tata Steel’s Vice Chairman B. Muthuraman declined to comment today.
India asked International Coal Ventures Ltd., comprising state-run metal and energy companies, to consider bidding for Riversdale, Arup Roy Choudhury, chairman at India’s biggest power producer NTPC Ltd., said Dec. 14. The venture may hire bankers to make an offer and may meet soon with them, Chairman C.S. Verma said yesterday.
“The fact that Rio hasn’t been able to get any of Riversdale’s major shareholders across the line indicates they are waiting for a better deal,” Ben Potter, a market strategist at IG Markets Ltd. in Melbourne, said. “If the assets are attractive to Rio, then you can guarantee other major players are doing their due diligence. We’d be surprised if $16 per share was the winning bid.”
Rival Bids?
Other potential suitors include Vale SA, the world’s biggest iron ore exporter, which has operations in Mozambique, UBS AG said Dec.6 in a report. Vale, the world’s biggest iron ore exporter, is building the Moatize coking coal mine in Mozambique at a cost of $1.7 billion for the first stage. Riversdale has not had approaches from any other company, Riversdale’s Mallyon said.
Tata Steel has been buying Riversdale shares since the third quarter of 2008, according to data compiled by Bloomberg, when Riversdale shares were trading at an average of A$9.19. Its most recent purchase was in the second quarter of this year when shares averaged A$9.54.
Cia. Siderurgica Nacional, Brazil’s third-largest steelmaker, bought a 16.3 percent stake in Riversdale in November 2009, paying A$6.10 for each share. The Rio de Janeiro- based company now holds 13.2 percent after selling shares in the first quarter of 2010, according to data compiled by Bloomberg.
Rio is paying 6.6 times the asset value of Riversdale, according to data compiled by Bloomberg. That compares with the 1.9 times median of 10 comparable industry deals globally in the past five years.
Mining Deals
Global mining deals have more than doubled this year to $142 billion, according to data compiled by Bloomberg. That’s the highest since 2007’s $151 billion.
Global demand for coking coal may rise 16 percent to 259 million metric tons in 2010, UBS AG estimated. The market will tighten further in 2011 and 2012 with an estimated deficit of 4 million to 6 million tons driven by demand from China and India, UBS said.
A successful takeover by Rio would add 13 billion tons of coking coal to its resources, split between Riversdale’s Zambeze project and the Benga development, according to the Australian miner’s website. Zambeze may cost between $2.8 billion and $2.9 billion to develop and Zambeze may cost $950 million.
To contact the reporters on this story: Rebecca Keenan in Melbourne [e-mail]; Shani Raja in Sydney at [e-mail].
To contact the editor responsible for this story: Andrew Hobbs at [e-mail]; Amanda Jordan at [e-mail]