‘There have been some rumors that BHP-Billiton might make a higher bid for Alcan but this seems doubtful to me as the greater synergies lie in Alcan being part of Rio Tinto. But wouldn't it shock the world if BHP-Billiton eventually turned around and took a bite at Rio Tinto. It is not impossible. The combined group would then dwarf by a mile Anglo American in terms of revenues gained’. (my bold)
Of course it happened yesterday. BHP-Billiton made a bid for Rio Tinto worth $US 100 billion that would make it not just the largest mining firm on earth (it already is this but this merger would make it emphatic) but one of the largest business firms on the planet – it would be the third largest company on the Dow Jones. The merged companies would have a combined market capitalization of around $380 billion and combined annual sales of $55 billion. The combined businesses would jointly control 36% of the world’s exported iron ore.
Rio Tinto has rejected the bid but it is early days yet. BHP-Billiton may have to sweeten the deal (currently 3 BHP-Billiton shares for each Rio Tinto share) with some cash. A few weeks ago during a market slide Rio Tinto shares fell back to under $100 – yesterday they closed at $132-42 an increase of 21.7% over the previous day.
The huge sums being contemplated here are a testimony to the strength of both companies and the reconstruction of the Chinese and Indian economies using Australian resources. They are also a testimony to the immense strength of the Australian economy as a whole – we may well end up being the wealthiest nation.
I am almost sure that eventually a deal will be reached between the companies. It makes a fair bit of business sense. Marius Kloppers the CEO of BHP-Billiton is a serious man and, although only being in the job for a few months, has the support of his board – the deal itself was probably envisaged before he even took over. This is not a speculative or exploratory move. It’s a serious bid that should eventually work.