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Riversdale Directors Back Rio Tinto Offer

January 24, 2011

“Rio Tinto PLC’s 3.9 billion Australia dollar ($3.8 billion) takeover of Riversdale Mining Ltd. received a boost Monday when the last holdout on the coking coal miner’s board recommended the deal along with its other directors.

NK Misra, a Tata Steel Ltd. appointee to Riversdale’s board thanks to the Indian company’s 24.2% stake in the miner, backed Rio’s offer signalling that the steel producer may not seek to block Rio’s buyout with its own bid to take control of the miner, according to a statement.”

Source: Wall Street Journal, January 24 2011

Observations:

  • Rio Tinto’s bid was unconditionally approved by the Australian Treasurer last Friday, enabling it to quickly close the deal. To convince the shareholders the opinion of Riversdale’s board was crucial.
  • ICVL is reported to meet with a consortium of Indian coal producers on Thursday to discuss a counterbid. This gives the Indians 3 weeks before the closure of Rio Tinto’s bid to convince the shareholders they can offer a higher price.

Implications:

  • ICVL’s chairman has started the verbal bidding war already, by announcing in an interview that the consortium will offer a higher price than offered by Rio Tinto. However, it is hard to find more synergies with the Indian companies than with Rio Tinto. A high Indian offer for Riversdale would purely be a strategic move in order to gain production market share, which could lead to further opportunities in the future.
  • The role of Tata in the acquisition is not fully clear. The company holds 24% of Riversdale’s shares and says it is not opposed to the acquisition. However, the advice by the board member appointed by Tata is explicitly said not to be Tata’s opinion. Tata could surprise Rio Tinto by siding with the Indian consortium, thus gaining goodwill from the Indian government.

©2011 | Wilfred Visser | thebusinessofmining.com

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