Miner and commodity trader Glencore has increased its bid for Rio Tinto’s Australian coal assets, in a second attempt to see off competition from a state-backed Chinese rival.
The company is now offering $2.675bn for Rio’s Coal & Allied business, up from $2.55bn, and will pay the entire purchase price upfront instead of in annual instalments.
Glencore’s new proposal comes just days after Rio snubbed its previous offer, saying it would recommend a lower $2.45bn bid from Yancoal, an Australian-listed company controlled by Chinese coal company Yankuang Group.
Rio said the Yancoal offer provided better value and certainty for its shareholders, adding that Glencore had not secured regulatory clearance for its bid in Australia, China, South Korea or Taiwan. There was “uncertainty that these approvals could be received in a timely manner”, it said.
In an attempt to address those concerns, Glencore said on Friday that Rio could keep all of the cash generated by Coal & Allied until its bid received regulatory approval. In addition, Glencore said it would pay Rio $225m in the event the deal was blocked.
“Glencore believes that there is no legal basis to consider that such approvals will not be obtained,” the company said in a statement. Most of the coal produced by Coal & Allied is bought by utility companies in Japan, where Glencore already has approval for its bid.
Glencore’s improved offer puts Rio in an awkward position. If the Anglo-Australian miner decides to recommend Glencore’s bid over the Yancoal offer, it risks damaging relations in Beijing. Not only is China the main buyer of its commodities but Chinalco, a state-backed aluminium producer, is Rio’s biggest shareholder with a 13 per cent stake.
Rio said it would give Glencore’s new proposal appropriate consideration. Its shareholders are due to vote on the Yancoal proposal next week.
Glencore boss Ivan Glasenberg, a renowned dealmaker, has long coveted Coal & Allied, which produces high-quality thermal coal from Australia’s Hunter Valley. Analysts believe the company would be able to generate significant cost savings if it were to combine the Rio assets with its own Hunter Valley mines.
“Even with an upsized offer, we believe this deal makes eminent sense given the high synergy value of the business combination — an increasing rarity in mining deals,” said Alon Olsha, analyst at Macquarie.
But debt-laden Yancoal, which has a market value of $324m, is also keen on buying the business because it would improve the quality of its assets. It will have the right to match Glencore’s offer if it is deemed to be a superior proposal by Rio.
Yancoal is 78 per cent-owned by Hong Kong-listed Yanzhou Coal, which itself is 56.6 per cent owned by Yankuang. The company has $3.6bn of net debt and has not reported an annual profit since 2012.
“With a higher cash balance and assurances mitigating deal close and timing risk, we would expect the Rio Tinto board will deem this bid superior and would expect to see a response from Yancoal over the weekend [or on] Monday,” said Tyler Broda, analyst at RBC Capital Markets.
Yancoal, whose shareholders also include crisis-hit commodity trader Noble Group, intends to finance its offer through a capital increase. Yankuang has agreed to provide $2.1bn in funding if it cannot raise all the money it needs through a share placing.
Source: www.ft.com
