China on Friday weighed into the bidding battle for the world’s minerals deposits when it launched the largest-ever dawn raid to snap up a 9 per cent stake in Rio Tinto, the UK-listed mining giant at the centre of a takeover battle.
Together they secured up to 12 per cent in Rio’s London-listed shares. This investment gives them a 9 per cent overall stake in Rio which enjoys dual listing in London and Sydney.
BHP had been expected to launch an offer of three BHP shares for each Rio share on Wednesday, the deadline set by the UK Takeover Panel. But the Chinalco gambit threw BHP’s plans into disarray. Marius Kloppers, its chief executive, will this weekend decide whether to plough on with the bid or walk away.
Xiao Yaqing, Chinalco president, said that his group’s acquisition of a stake in Rio was driven by a need to diversify outside China, its bullish outlook for commodity prices and “our belief in the fundamental value of Rio Tinto”. The UK-listed company owns some of the world’s best iron ore, copper and aluminium mines and is a big supplier of these metals to China.
But people close to the deal said on Friday that the primary motive was to make it more difficult for BHP to buy Rio.
The Chinese government is dismayed at the prospect of a BHP takeover of Rio as it would give the combined company a virtual monopoly on iron ore supplies to China, which it fears would lead to higher prices and damage the country’s economic growth.
“The Chinese have been grumbling, but we did not realise they would be so aggressive in trying to thwart BHP,” said a mining industry consultant in Shanghai who asked not to be named.
Chinalco and Alcoa said they did not intend to make an offer for the whole of Rio but reserved the right to “participate in an offer or possible offer” for Rio in the event BHP makes a bid.
A person close to the deal said the Chinese government had been looking at ways to block BHP’s takeover ambitions since late last year, and had finally decided that Chinalco would be the best state-owned enterprise to use as a vehicle.
One leading Rio shareholder said “this is global capitalism for political gain”.
Rio’s UK-listed shares closed up 644p at £56.00 on expectations of a bidding war, while BHP’s shares closed up 145p at £16.22, implying that some think the group will walk away rather than overpay for Rio.
♠ Posted by Emmanuel in China at 2/01/2008 07:35:00 PMI previously noted the logic in China trying to break up BHP Billiton's hostile bid for Rio Tinto: These two Australian mining giants supply the PRC with a lot of its mineral supplies; a combination of both would increase supplier power to near-monopoly proportions--or so China fears. There were rumors that state-owned firm Baosteel would mount its on bid for Rio Tinto, but that didn't materialize. What we have here instead is China throwing a spanner into the works by buying a 9% stake in Rio Tinto. American firm Alcoa chipped in as well to raise their combined holdings to 12% in Rio Tinto. This holding is, of course, a ploy which China hopes will deter BHP Billiton's efforts to buy Rio Tinto. Will it work? Stay tuned. $14B may seem like a lot of money to throw around to ensure a hunch that a potential monopoly is in the offing is busted up, but really, it's chump change for China. Expect more geopolitical investing from the PRC in the future. Welcome to the newer international economic order. From the Financial Times: