Rio Tinto: BHP's New Bid Still Not Enough

BHP Billiton’s (BHP) revised $147-billion offer for rival Anglo-Australian miner was met with a swift and unanimous rejection from Rio Tinto (RTP). But while Rio said the sweetened 3.4-for-1 share proposal undervalues the company, it appears willing to talk.

“Our plans are unchanged, and will remain so unless a proposal is made that fully reflects the value of Rio Tinto,” chairman Paul Skinner said in a statement.

UBS analyst Edmo Chagas said it appears that BHP has received waivers from the Australian Takeover Panel and the process will go ahead under the U.K. takeover timetable.

While the new price tag appears as though it will be dilutionary for BHP, the future merits of the deal nonetheless outweigh this near-term downside for shareholders, he told clients in a note.

The analyst suggested that BHP may even have a little more room to move, perhaps to the 3.5-to-1 share range. Regardless, he thinks this game is nearing its end.

Another thing investors should be aware of is BHP’s proposed initial $30-billion share buyback if the deal is completed. Both the bid and this buyback would be funded by a $55-billion committed bank facility, operating cash flow, asset disposals and debt financing, if required, Citigroup analyst Clarke Wilkins said in a research note.