Rio Tinto May Break Up Aerospace Division to Attract Bidders

May 26 (Bloomberg) -- Rio Tinto Group Plc, the world’s third-largest mining company, may accept offers for parts of its aeronautics and automotive division after abandoning the sale of a minerals unit last week. “We are looking at the engineered products unit as a number of separate units, so there are a number of sale processes and they are all continuing,” Rio Tinto spokesman Nick Cobban said today by telephone from London. He declined to comment further on the progress of the sale. Apollo Management LP, Carlyle Group and TPG Inc., three private equity firms that had expressed interest in all of Alcan Engineered Products, dropped their bids after struggling to arrange debt funding for the acquisition, said three people familiar with the talks who declined to be identified. Demand for the alloys AEP makes for aircraft such as Airbus SAS’s A380 has also dwindled, the people added. Private equity firms have struggled to fund takeovers in Europe and the U.S. The firms typically rely on loans secured on the targets they acquire to finance about two-thirds of the purchase price. At 4 billion euros ($5.6 billion), AEP would have been the world’s biggest leveraged buyout this year. The unit employs 15,000 at 55 factories in Europe and North America. Rio Tinto is selling assets to help to repay $10 billion of debt this year. It has raised a quarter of that amount through the sale of iron ore and potash assets in Latin America, a U.S. coal mine and a share in a Chinese aluminum smelter. Last week, Rio Tinto dropped the sale of its borates unit after failing to get what it called an “acceptable” price. Chinalco Investment The miner is battling shareholder and political opposition to a proposed $19.5 billion investment from Aluminum Corp. of China, known as Chinalco. Rio Tinto has agreed to sell $7.2 billion of convertible debt and $12.3 billion of stakes in its mines, potentially doubling the Chinese company’s holding in Rio Tinto to 18 percent. “That Rio Tinto hasn’t found any buyers for AEP in this market is no surprise,” said Vincent Lepine, an analyst at Exane BNP Paribas with a “neutral” rating on Rio Tinto. “Now the company will have to either go on with an amended version of a deal with Chinalco, or a rights offer.” A leveraged buyout of AEP would have surpassed CVC Capital Partners Ltd.’s $4.4 billion purchase of Barclays Plc’s iShares unit in April, according to data compiled by Bloomberg. Barclays assisted the purchaser with a $3 billion loan. “Private equity remains constrained to invest equity due to the lack of availability of credit,” said Pablo Mazzini, a director of leveraged finance at Fitch Ratings in London. Private Equity Firms Apollo, based in New York, had teamed up with French insurer Axa SA’s private equity unit to bid for the unit and had asked French government investment company Caisse des Depots et Consignations to join, the people said. Washington-based Carlyle had teamed up with French investment firm Eurazeo SA, while TPG Inc. had also expressed interest, the people said. Officials at Apollo, Carlyle, TPG, Axa Private Equity and Eurazeo declined to comment. A spokesman for CDC couldn’t immediately be reached. AEP is Europe’s largest supplier of extruded aluminum parts and plates to the aerospace industry. The unit had a profit before interest, tax, depreciation and amortization of $567 million on revenue of $7.1 billion in 2006, the most recent period available on the unit’s Web site. The unit took over some of Pechiney SA’s French factories when parent Alcan Inc. acquired the aluminum maker in 2003. Rio Tinto, in turn, bought Alcan for $38.1 billion in 2007. To contact the reporter on this story: Anne-Sylvaine Chassany in Paris achassany@bloomberg.net; Brett Foley in London at bfoley8@bloomberg.net