Rio Tinto Faces Key Week for Riversdale Bid

Australian mining giant Rio Tinto PLC faces a crucial week in its quest to take over Africa-focused coal producer Riversdale Mining Ltd., after a slow take-up of acceptances since the offer was first made in December.

The bid was recently sweetened to almost four billion Australian dollars (US$3.99 billion) and the deadline extended a third time after few additional Riversdale shareholders committed themselves to selling to Rio Tinto.

Rio Tinto said Friday it had now secured shares and commitments over 33.04% of the voting rights in the Australian coal company, still well short of the more than 50% threshold it needs by the March 23 deadline it has set for its revised offer.

"The offer does appear to be gaining momentum," Niall Lenahan, chief financial officer of Riversdale, said in an interview last week. "There should be a lot more clarity [this] week on where things will go."

Roughly 80% of Riversdale's shares are now in the hands of three companies: Rio Tinto and steel producers Tata Steel Ltd. of India and Cia. Siderurgica Nacional of Brazil, which together own 47%. People familiar with the bid have said they don't expect Tata or CSN to make rival offers, but may be hoping to use their equity stakes to negotiate for future supplies of Riversdale's coking coal, a key ingredient in steel making. Riversdale operates a coal mine facility in South Africa that was opened in 1985, but of greater interest are its two projects in an area of neighboring Mozambique that has attracted interest from mining and steel companies from around the world.

For Rio, which has experience in Africa and the ability to fund the development of the projects, the assets would expand its coking coal operations beyond Australia at a time when the fuel is in demand in a number of countries, not least China and India. Rio also won't want to be forced to capitulate and walk away from an acquisition having only revived its image following the badly timed US$3.8 billion acquisition of aluminum producer Alcan at the top of the market.

Rio after preliminary negotiations late last year offered A$16 a share for Riversdale, only to be frustrated when Brazil's CSN in February edged up its stake in Riversdale to 19.9% and then Tata Steel early this month raised its stake 2.9 percentage points to 27.1%. Last week the offer was increased to A$16.50 a share, and has since continued to secure more acceptances. Rio can continue extending the deadline for its offer for 12 months, although it has said its sweetened bid is final unless a rival suitor makes a counteroffer. One person familiar with the deal said Rio has held talks with Tata Steel and CSN, as well as other Riversdale shareholders, to encourage them to sell by the deadline.  Rio spokeswoman Karen Halbert declined to comment.

There is likely to be a flurry of acceptances from minority shareholders early this week, said Tim Schroeders, a fund manager at Pengana Capital Ltd. in Sydney, which owns shares in Rio. It isn't uncommon for fund managers to hold out in case their are last-minute developments or a rival bid, he said.

A person close to the offer said some Australian fund managers are also prevented from selling in a takeover offer before it becomes unconditional. The offer has been recommended to shareholders by Riversdale's board, including by Narendra Misra who also is head of mergers and acquisitions at Tata Steel.

Executives at Riversdale have said that if Rio's bid fails then the coal company will have to turn to its shareholders, the bond market and other sources for funding to develop the Mozambique projects. A spokesman for Tata Steel declined to comment on the company's intentions for its holding in Riversdale, although it has previously described it as strategic.

Riversdale in January estimated it needed at least US$400 million for its share of costs for the second and third stages of the Benga project and at least US$2.9 billion for the Zambeze project. Benga has an identified coal reserve of 502 million metric tons and a resource of four billion tons and Zambeze, which is at an earlier stage of development, has an estimated resource of nine billion tons. Rio is being advised by Macquarie Group Ltd. and Riversdale by UBS AG.(The Wall Street Journal)