SYDNEY: Anglo-Australian miner Rio Tinto (RIO.AX) has offered $3.9 billion to buy African-focused rival Riversdale (RIV.AX) in an agreed deal to tap soaring demand for coking coal but investors are betting on a possible bidding war from rival suitors.
Rio´s first big acquisition since its ill-timed Alcan buy in 2007 also needs the backing of at least one of Riversdale´s three large shareholders. Fund managers said they expected India´s Tata Steel (TISC.BO) and Brazilian steel group CSN (CSNA3.SA) to oppose the offer.
Rio‚ which wants access to Riversdale´s coking coal deposits in Mozambique‚ raised its offer to A$16 per share cash on Thursday from an earlier indicative bid of A$15.
Riversdale´s shares rose as high as A$16.84 when the stock resumed trading‚ indicating investors were expecting a higher offer from a rival party.
"I think there is a strong potential (for rival bids). There aren´t that many big new coking coal assets out there and this one is very large and it´s near to production‚" said Andrew Harrington‚ an analyst at Patersons Securities in Sydney.
A group of state-run Indian firms including NTPC (NTPC.BO) have also indicated they were looking at Riversdale‚ with a source at a member of the consortium telling Reuters on Wednesday it expected to decide soon whether to bid.
Other interested parties taking a look at Riversdale include Anglo American (AAL.L)‚ ArcelorMittal (ISPA.AS) and Xstrata (XTA.L)‚ sources familiar with the matter and fund managers have said.
The miner needs acceptances from 50 percent of Riversdale shareholders which would require getting on board at least one of the target´s three big shareholders -- Tata‚ CSN and US fund Passport Capital -- which together own about half of the company‚ according to Reuters data.
"I think Tata will be reluctant to be bought out‚ having been a long-term believer‚ just as it´s entering into production‚" Patersons´ Harrington said.
Rio failed to secure acceptances from the big shareholders before announcing the offer on Thursday but did enter into pre-bid agreements to buy 14.9 percent of Riversdale shares‚ including from Riversdale´s executive chairman and founder Michael O´Keeffe and managing director Steve Mallyon.
Riversdale directors all recommended the bid in the absence of a higher offer‚ except for Tata Steel´s board nominee who abstained from voting. Tata Steel declined to comment on Thursday.
Riversdale owns valuable coking coal assets in Mozambique which Rio said was in line with its strategy of developing large‚ long-life‚ low-cost assets.
SURGING DEMAND‚ SOARING PRICES
Riversdale may eventually supply 5-10 percent of the global market for the key steel-making material‚ analysts say.
Rio´s A$16 per share bid comes just below Riversdale´s last traded price of A$16.30 before trade was halted on Tuesday ahead of the announcement. Riversdale shares were 1.8 percent firmer at A$16.60 in afternoon trade Thursday‚ while Rio shares were 0.8 percent higher at A$87.46‚ outperforming the broader market (.AXJO).
Rio said the offer was at a 46 percent premium to the one-month volume weighted average price of Riversdale shares up until November 3.
Riversdale shares have risen more than 130 percent this year‚ helped by takeover hopes and riding a boom in commodity prices fueled by soaring demand in China and India in particular.
A successful bid would cap off a boom year for mergers and acquisitions involving Australian-listed firms. About $7.2 billion of deals involving Australian companies have been announced in the last three days as companies raced to complete transactions before Christmas.
Another coal miner Whitehaven Coal (WHC.AX) has also invited interested bidders to conduct due diligence on the company.
Rio is now back on the acquisition trail after the global economic downturn froze its expansion plans. It took on $40 billion in debt to buy Canadian aluminum maker Alcan in 2007 and was forced to sell assets and new equity to lower its gearing.
Last month‚ the mining company said it was set to nearly triple capital spending‚ to $11 billion in 2011.
The deal is also a coup for Riversdale´s O´Keefe‚ who started out with MIM Holdings‚ once Australia´s largest copper and zinc miner and now owned by Xstrata. He later became managing director of Glencore Australia‚ holding the job for almost a decade before heading out on his own around 2004.
UBS (UBSN.VX) is advising Riversdale on the deal and Rio Tinto is being advised by Macquarie (MQG.AX).
(Additional reporting by Narayanan Somasundaram and James Regan in Sydney‚ Rebekah Kebede in Perth; Editing by Balazs Koranyi‚ Lincoln Feast and Muralikumar Anantharaman)