British mining giant Rio Tinto is considering the so-called Pac-Man defense as a means to fend off a hostile bid from BHP Billiton, the Wall Street Journal reported Friday. According to that strategy, the target company turns the tables and places a counterbid for the acquirer. Last week, Rio rejected Billiton's A$140 billion bid on the grounds that it "significantly undervalues Rio Tinto and its prospects." Rio's size makes a bidding war unlikely, so it has to come up with strategic options to fend off the bid. Though the Pac-Man defense has a checkered success rate, it can serve to highlight the value of the target company and possibly keep management in place if the purchase does eventually go through. Analysts consulted by Reuters view the Pac-Man defense as unlikely in this scenario, since Billiton might sweeten its bid and Rio might not be able to pull off an acquisition of its larger competitor. "At face value you'd say it's unlikely and high risk," said Peter Chilton of Constellation Capital Management. Rio has established a special board committee to construct a defense strategy, which could include asset sales among other options. The strategy will be disclosed at an investor meeting on November 26. If the companies do combine, they will have operations on six continents and lead the global market in iron ore, copper, aluminum and other natural resources. This week, BHP embarked on a global tour to convince shareholders to back the deal.
Commentary: BHP's Bid For Rio Tinto Moves Into Overdrive • UBS Anticipates Higher Offer From BHP Billiton For Rio Tinto • Rio Tinto Rebuffs BHP Buyout Bid
Stocks to watch: RTP, BHP. ETFs: SLX
Earnings call transcript: BHP Billiton Ltd. Annual Fiscal 2007