Saturday, November 17, 2007

Pac-Man defence: Rio to gobble BHP-Billiton?

This is weird – a rumour from the Wall Street Journal suggests that Rio Tinto may turn on its pursuer and attempt to takeover BHP-Billiton. This has intricate implications since Rio Tinto originally rejected BHP-Billiton’s offer to take it out on the grounds that the 3 BHP-Billion share offer for 1 Rio Tinto shares undervalued Rio Tinto. Rio Tinto would have to pay a huge reverse premium over this to get BHP-Billiton itself.

It is likely that both firms are undervalued but this squabble looks like a conflict over exercising control rather than maximising shareholder value.

What it does show is that Rio Tinto is worried the BHP-Billiton bid might win.

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