BHP signals no cash sweetener for Rio bid

Top miner BHP Billiton Ltd gave its strongest indication yet that it would not add a cash sweetener to its all-share US$69 billion offer for rival Rio Tinto Ltd. There has been market speculation BHP might try and win over Rio’s board, which has rejected the overture, by adding cash to its offer of 3.4 of its shares for every Rio share. But BHP Chief Executive Marius Kloppers said yesterday the financial turmoil hitting commodity markets was no reason to amend the deal. “Our offer is very compelling the way it is,” Kloppers said in answer to questions following a speech in Sydney. “Joining these companies together means more production at lower costs.” Some analysts have said the deterioration in the value of the offer, to about half the original price, leading to Rio shares trading at a significant discount, was also an argument for adding cash. But Kloppers blamed the sharper decline in Rio’s share price, which has dropped 43 per cent since last November, on a “flux” in the market over the outcome of the bid. BHP’s stock is down about 37 per cent over the same period. “The fact that Rio Tinto trades below the offer price underscores our belief that Rio shares would be trading very differently were it not for our offer,” Kloppers said. “We believe this is in part due to BHP Billiton’s strong financial performance and also some uncertainty around the required regulatory approvals.” The EU’s executive Commission has set a January 15 deadline for making a final ruling on the deal, which has already been cleared by Australian and US competition regulators. A combination of BHP and Rio would create a mining group controlling more than a third of the world’s seaborne trade in iron ore, the main raw material for steelmaking. Rio Chief Executive Tom Albanese said on Tuesday in Montreal that current market conditions had not softened his opposition to the offer. World prices for the millions of tonnes of mineral commodities both companies churn out have collapsed amid concerns of mounting supply gluts. Since July, aluminium has lost 31 per cent of its value, copper is down 47 per cent and nickel sells for 38 per cent less. After six straight years of iron ore price increases, analysts now predict next year’s ore price will be flat at best. Kloppers also predicted a recent decline in China’s hunger for imported raw materials was only temporary. Source: Business Times