bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

paywallTypes

createdDate

publishedDate

sponsorType

urlAlias

moreOnThisArticles

commentCount

authorLocations

authors

corrections

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

articleSpeeches

socialHeadline

headline

images

flag

firstTopic

glossary

flattenTypeIds

image

relatedLinks

relatedNewsletters

__typename

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

SCMP Reporter

Mainland corporates bide their time as BHP Billiton has yet to come to a firm decision
Beijing has sanctioned major state-owned corporates to look into three strategies for mounting counter-bids for iron ore miner  Rio Tinto that could come from a domestic consortium, local players working in concert with foreign companies, or buying shares on the open market.
'[Companies] have approval from the State Council to go ahead and get actively involved,' said one source.
But no bid will  materialise - if one does at all - until or unless the original bidder BHP Billiton  raises the ante  and formalises its US$140 billion offer for Rio.
On December 11, Rio asked  Britain's Takeover Panel to order BHP to make a formal offer or end talk of a bid.
The panel can require companies to make a definitive offer, usually within one to two months of a ruling, under a  'put up or shut up' rule. If a firm offer is not made by the preset deadline the company cannot make an offer for a six-month period.
China International Capital Corp and Bank of China International have been retained by the government in an overall advisory role, a source said. 'We're doing some advising but no one company has hired us,' said a source at CICC. Official spokeswomen at CICC and BOCI had no comment.
Most of the bankers on Wall Street and in Zurich, including Goldman Sachs, Merrill Lynch, UBS, Credit Suisse, Morgan Stanley, Citi, Deutsche Bank and JP Morgan, are already advising either Rio or BHP. 'There aren't many banks that aren't conflicted out of advising a Chinese consortium,' a banker said.
On November 8, BHP said it would offer Rio shareholders three BHP shares for every one Rio share. Rio management rejected the offer as too low and has refused to meet with BHP to discuss a deal.
Not long after BHP announced the proposed deal, chief executive Marius Kloppers said post-merger synergies could generate US$3.7 billion a year for the new company that would emerge.
The counter bid now being floated in  the mainland, which is concerned about the pricing power that would emerge from a BHP-Rio tie-up, faces formidable roadblocks.
'It still requires a consortium, and the question is can you get everyone to unite? Does Shenhua want to lead it? Does Chinalco lead it? How do you break up the [Rio] assets? [But] the Chinese are working on it,' said a person familiar with the situation.
Add  international players into the mix, another route Beijing has approved companies to look into, and the difficulties increase.
Companies such as Anglo American and Xstrata are expected to show interest in a Rio bid and could be potential partners. Not long after BHP announced the bid in November Baosteel approached Nippon Steel and Posco Steel about such a consortium but nothing came of the effort, sources said.
Option three, buying shares in the open market from current holders would be an attempt to gain some kind of leverage over how a BHP/Rio deal plays out or a springboard to a full  mainland bid.
'China could block it when BHP tries to buy or [in the end] if BHP just takes 51 per cent and keeps two companies,' a source said.
'The Chinese could also get BHP to offer its petroleum assets or assets from Rio Tinto as part of a BHP/Rio deal.'
While picking up a stake this way skirts drawn out negotiations initially it could get expensive in the end. 'It might be easier this way but if you're trying to gain a substantial stake it can be a problem because once they start to build up a stake the share price  will go up and that will increase the final costs of completing the deal,' said Vivian Cheng, an analyst at Everbright Securities.
The mainland's sovereign  fund is expected to provide some financing for a  mainland bid but  will not lead the transaction  for fear of worsening a political backlash, the sources said.
The US$140 billion bid would rank as the second-largest  merger and acquisition deal ever after Vodafone's US$203 billion takeover of Mannesmann in 2000.
The mainland,  like companies in other countries, fears that a combined BHP/Rio would be able to increase  prices  on a number of raw materials the country desperately needs to fuel its double-digit economic growth. Such a merged company would own about 27 per cent of the world's iron ore and effectively control global trade in coal, uranium, copper and diamonds.
Baosteel Group said it was not planning to make a bid for Rio after the mainland's 21st Century Business Herald reported on December 4 that chairman Xu Lejiang said the possibility of a bid from Baosteel or other Chinese steelmakers was high.
Rival steelmaker Shougang Corp director Chen Hanyu said on December 4 in an interview with Bloomberg that  mainland steelmakers and the government were studying a bid for Rio.
A Shougang executive later said Mr Chen had been misquoted, according to a report from Reuters.
State-owned China Development Bank took up a less than  1 per cent stake in Rio last month, according to a report in the Sunday Telegraph at the time. CDB denied the move.
Spokespeople at Baosteel, Shougang, Chinalco and Shenhua  could not be reached for comment.



Bidders consider trio of Rio Tinto options