The world’s biggest resources group, BHP Billiton, on Monday piled pressure on Rio Tinto to take another look at its proposed $153-billion all-scrip merger by pitching the benefits of the merger to analysts and shareholders.
Marius Kloppers, CEO of BHP Billiton, said during a marathon hour-and-a-half conference call that the combination of BHP Billiton and Rio Tinto, the world’s third-largest resources group, would unlock value that is otherwise unavailable.
News of the proposed merger emerged last week when BHP Billiton first acknowledged having approached Rio Tinto for talks.
Rio Tinto rejected BHP Billiton’s advances, saying the three BHP Billiton shares for every one Rio Tinto share proposal “significantly undervalues Rio Tinto and its prospects”.
But BHP Billiton, which was created out of the merger of Australia’s BHP and South Africa’s Billiton in 2001, has come back with what it believes is a “logical and compelling” argument for the combination of the two mining majors.
Besides the 28% premium presented by the three-for-one-share all-scrip offer, Rio Tinto shareholders would end up holding 41% of the combined group and therefore be guaranteed continued participation in the merged entity’s future growth.
But if that does not grab shareholders’ attention, BHP Billiton has thrown in a $30-billion share buy-back into the offer in an attempt to seal the deal.
Kloppers indicated that the thinking behind the deal is based on creating a group that could more rapidly satisfy growing demand from industrialising economies such as China and India.
“The two companies each have portfolios of large-scale, low-cost, long-life assets that are highly complementary and, when combined, would be without peer,” BHP Billiton said, adding that the combined company would focus on the extraction of upstream natural resources.
Kloppers was quick to refute suggestions that the group was chasing volume at all costs. “We do not seek scale for scale’s sake. It’s all about value,” he said.
He added the merger would produce at least $3,7-billion in cost savings and earnings increases, among them $1,7-billion in annual cost savings in the third year after completion and further earnings enhancement of $2-billion a year in the seventh full year, driven by the acceleration of volumes to customers.
Total one-time implementation costs of the deal, which would be the biggest to date in the mining sector, would be $650-million over the first two years after completion.
Overall, Kloppers said, the combination would create a “super major” that would rank among the world’s top five companies by market capitalisation. — I-Net Bridge