BHP offers $147.4bn for Rio

Yesterday, BHP Billiton made a $147.4 billion hostile bid for Rio Tinto in efforts to create a merged entity that would become the world’s third-richest company, behind Exxon Mobil and General Electric.

The move could create a conglomerate that would supply industries worldwide with millions of tonnes of minerals each year.

However, it is likely to meet opposition from Rio’s largest shareholder, the state-owned Aluminium Corp of China (Chinalco), which is known to be keen to preserve diversification in the mining sector.

In addition, major customers of both companies have been raising concerns about the potential dominance of a merged group since the idea was first mooted last year.

BHP Chief Executive, Marius Kloppers, has told reporters “Rio Tinto shareholders will now decide … this is our first and only offer.”

Some analysts are doubtful that the bid will be enough to win Rio shareholders, although an estimated 60-70% also hold BHP shares.

Bertie Thomson, a fund manager at Aberdeen Asset Management, who holds both Rio and BHP shares, has described the bid as “a lot fairer than the offer we’ve had before, (but) it’s by no means a knock-out offer.”

Rio’s board is likely to argue that shareholders will be better off if the company remains an independent.