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Tue, Nov 13, 2007 - Page 10 News List

BHP plans huge buyback should Rio's bid succeed

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BHP Billiton Ltd, the world's largest mining company, said it would buy back US$30 billion of shares should it win control of Rio Tinto Group.

The merged business would have "superior cash flows" enabling it to return funds to shareholders, Melbourne-based BHP said yesterday in a statement, forecasting annual savings of US$3.7 billion.

Rio Tinto, which last week rejected the offer, rose to a record in Sydney, taking its market value to US$174 billion.

The buyback, equivalent to about 8 percent of the two firms' market value, may increase the attractiveness of the bid by reducing the number of shares traded. The group may overtake Brazil's Cia. Vale do Rio Doce as the world's biggest iron-ore exporter as demand from China surges.

"They're trying to build up support for the bid by releasing the details, so they can show the positive aspects," said Neil Boyd-Clark, who helps manage the equivalent of US$6.3 billion at ABN Amro Asset Management in Sydney, including both shares.

"The logic of a combination makes very good sense," he said.

Rio rose A$8.82 (US$8.06), or 6.7 percent, to A$139.72 at the close of the Australian Stock Exchange. BHP fell A$0.77, or 1.8 percent, to A$41.70.

"It's a proposal that has already been rejected by Rio Tinto's board after careful consideration," said Ian Head, a Melbourne-based spokesman for Rio yesterday. "It remains way out of the ballpark."

The initial offer valued Rio at 28 percent more than it was worth before the bid, BHP said yesterday.

BHP may need to offer 60 percent more than Rio's value before the bid, Perennial Investment Partners Ltd, which manages A$20 billion, said yesterday.

A combined BHP and Rio would have a 38 percent market share in global seaborne iron-ore trade, according to Australia & New Zealand Banking Group Ltd. That would be similar to the market share of Brazil's Vale.

Combining the two firms would allow "economies of scale, sharing of infrastructure and removing duplication," BHP said.

BHP predicted it would take nine to 12 months to get regulatory approval for a takeover, but it does not anticipate any difficulties.

"The board of BHP Billiton has sought and continues to seek to engage in discussions with Rio Tinto with a view to obtaining the support and recommendation of the board of Rio Tinto," BHP said.

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