Home > Mergers & Acquisitions > Rio Tinto in final push to win Riversdale

Rio Tinto in final push to win Riversdale

March 14, 2011

“Rio Tinto has sweetened its bid for Riversdale Mining to just over A$4bn ($4bn) in a final attempt to secure a minimum 50.1 per cent stake in the Australia-listed group that is developing coal deposits in Mozambique. Rio already controls 18 per cent of its target’s shares and is confident its latest offer, which it said is its last, barring a rival proposal, would see it become Riversdale’s dominant shareholder ahead of Brazil’s CSN, which has a 19 per cent stake, and India’s Tata Steel on 27 per cent.

However, for Rio to reach its 50.1 per cent threshold, it needs the backing of either Tata or CSN. The two have each lifted their stakes in Riversdale in recent weeks to strengthen their bargaining positions. Rio on Thursday revealed a cash offer of A$16.50 a share, up from A$16 previously, provided it reached 50.1 per cent acceptance by March 23. The revised offer, which has been extended by two weeks to April 1, is a 3 per cent increase from the previous bid.”

Source: Financial Times, March 10 2011

Observations:

  • First shipments of coking coal from Mozambique are expected this year. Tata has signed contracts to receive 40% of the output of Riversdale mines.
  • Rio Tinto announced today it has increased its stake in Riversdale to 26.1%. CSN and Tata together hold 47% of the shares, but some institutional investors are waiting with committing to sell their shares to Rio Tinto as they want more clarity on CSN’s and Tata’s intentions.

Implications:

  • The Indian coal consortium led by ICVL that was supposedly pressured by Indian government to consider bidding for Riversdale appears not to emerge as a rival bidder to Rio Tinto. As a result Rio Tinto will succeed in gaining the majority of the shares by buying out either CSN or Tata Steel or convincing almost all minority shareholders to sell their shares.
  • The deadline for the offer is April 1st. Rio Tinto faces the problem that it cannot discriminate in the price it is willing to pay for Riversdale’s shares in order to acquire 50.1%. If the company does not succeed in convincing the remaining shareholders with the current $16.5/share offer, it will either have to back off or increase its offer for all of the outstanding shares. If CSN or Tata then agrees to sell the companies will be paying a high premium and ending up with much more than a small majority of shares.

©2011 | Wilfred Visser | thebusinessofmining.com

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