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BHP Billiton raises bid for Rio Tinto

This undated photo released on Aug. 3, 2005, shows a worker inspecting iron ore stockpiles at the outback location of Marandoo, Australia. BHP Billiton lifted its bid for mining giant Rio Tinto yesterday, valuing its target at US$147.4 billion as it seeks a mega-merger to exploit the China-driven resources boom. PHOTO: AFP

BHP Billiton formalized its unwelcome takeover bid for Rio Tinto yesterday and raised the stakes with an all-share offer worth US$147.4 billion that would create a global mining monolith.

Rio Tinto, which rejected an initial approach from BHP Billiton last year as too low, said it would consider the new offer, and urged its shareholders not to act hastily.

BHP Billiton is offering 3.4 of its shares for every one Rio Tinto share, an increase from the initial informal proposal of three-for-one, the Melbourne-based company said. The offer applies to both companies in the Rio Tinto Group, the Australian-listed company Rio Tinto Ltd and the British-listed Rio Tinto PLC.

BHP Billiton is already the world's largest diversified mining company and Rio Tinto is the third-largest. Analysts say that if the deal succeeds, it would be the biggest takeover in the mining sector and one of the biggest ever in the corporate world.

Steelmakers in China, Japan and Europe have protested BHP Billiton's bid for Rio Tinto, contending that a takeover would give it too much influence over global iron ore supplies and pricing.

The deal would be subject to regulatory approvals in Australia, the US, Europe and elsewhere, and to 50 percent shareholder approval, BHP Billiton chief executive officer Marius Kloppers said.

He said the proposed merger would deliver efficiency benefits worth US$3.7 billion a year and raise the value of shareholdings in both companies.

"I believe there is widespread support for the compelling logic of the proposal to combine the companies," Kloppers told a briefing for reporters and analysts in Sydney.

Rio Tinto chairman Paul Skinner said the company would carefully consider BHP Billiton's latest offer and asked shareholders not to take any action yet.

"The boards of Rio Tinto will consider the terms of the proposal carefully in the light of all circumstances and will make a further statement once they have completed this assessment," he said. "In the meantime, the boards encourage shareholders not to take any action."

Rio Tinto's shares in Australia closed at A$127.14 yesterday, down 0.2 percent, after rising as much as 2.4 percent during the session in defiance of a broad market plunge. BHP Billiton -- which yesterday reported an annual drop of 2.4 percent in net profit for the six months ended December -- plummeted 7.5 percent to A$36.66.

Analysts said BHP Billiton's new offer would be more attractive to Rio Tinto than the earlier bid, but may still not be enough to secure the deal.

"It's a good starting point, it should get Rio to the negotiating table," Rob Patterson, managing director of Argo Investments, told Dow Jones Newswires.

Under the offer, Rio Tinto would hold 44 percent of the new company -- more than the 36 percent of the merged group BHP Billiton made in its earlier offer.

If the offer is successful, BHP Billiton said that it would return up to US$30 billion to shareholders through a share buyback within 12 months of completing the acquisition.
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