Friday, 9 November 2007

BHP Billiton's offer rejected

An offer from BHP Billiton for Rio Tinto has been rejected for the merge of the two Anglo-Australian companies to create an iron giant valued at some $350 billion (£166.6 billion). A merger would create a base metals colossus with powerful positions in coking coal, iron ore, copper and aluminium. Rio shares gained 946p, or 22%, to £52.96 ($111.2) in response to news of BHP’s interest, while BHP fell 100p, or 5.%, to £16.56 ($34.77).

In rejecting the proposal, Rio said it had given it careful consideration but “concluded that it significantly undervalues Rio Tinto and its prospects”. A merger between Rio and BHP could provoke a political storm and push the mining sector to the fore-front of government concern about the emergence of cartels in strategic commodities. The price of iron ore and coal, key ingredients in the production of steel, has soared over the past two years and a combined BHP-Rio group would have more than a third of the market in both iron ore and coking coal.

Instead, demand for iron ore has continued to soar and a price leap of as much as 50% is expected in 2008. Queues of bulk carriers are creating bottlenecks at terminals operated by BHP and Rio in Western Australia. Pricing is negotiated annually by three producers, BHP, Rio and CVRD, the Brazilian miner. BHP and Rio set prices in Asia in bench-mark deals with Japanese steelmakers while CVRD negotiates with European steel mills. (source: Timesonline)

Savers had withdrawn £10.5 billion from the stricken bank, Northern Rock, causing shares to fall as much as 12% in early London trade. This is almost half the £25 billion it had in its deposit accounts before approaching the Bank of England for emergency cash. Shares in the troubled bank were trading down almost 2% at 149p.

Northern Rock's savings business is small fry compared with its mortgage operations, which generated the bulk of the bank's earnings. But now, the money in its saving accounts represents a key asset to the troubled lender which, could end up borrowing as much as £30 billion by the end of this year to finance its mortgage operations. The rapid pace at which customers are closing their accounts and switching to other High Street banks and building societies could represent another difficulty for possible bidders.

US private equity firm JC Flowers is likely to bid, having put together a high-profile management team to take charge if it is successful, while Virgin has strongly indicated its interest. Asian investors, including Industrial and Commercial Bank of China, are also being targeted by the bank's advisors in an effort to get the best deal, according to the Financial Times. It is unlikely any will be interested without a guarantee that the government-backed loan will remain in place. (source: BBC News) - Virgin pushes forward in takeover & It is all about Virgin

No comments: