Anyone, like us, who has suffered the interminable "wait in the hall" hiatus for which Heathrow is so notorious, should just regard it as training for sitting out mining’s major bid.
The $140bn BHP Billiton move on Rio Tinto first appeared on the boards back in February. "Await documents" has been flashing ever since. There is absolutely no hope of BHP’s offer for Rio even reaching official posting stage for months.
Like any frustrated traveller, investors need some idea of what is happening. Actually there is more hope here than with BAA. At last there has been one decisive step. Being loudly broadcast is the fact that a vital regulatory stage has been reached. Permission is being applied to remove a major block from the wheels.
BHP Billiton, the world's biggest mining group, has at last formally filed with the European Commission for clearance to take over rival Rio Tinto. This showed up in a Commission list of M&A cases last Friday.
The Commission, the European Union's executive arm and also its antitrust regulator, set a deadline of July 4 for consideration of the deal. By that date the Commission must either approve the deal on competition grounds, open an in-depth investigation, or permit a short extension.
All sorts of points could give the Commission problems. Combining a number of BHP and Rio’s businesses would bring market dominance. So, Competition Commissioner Neelie Kroes is expected to be brought in.
Rio Tinto spurned BHP's all-share offer very shortly after BHP announced it. The Rio line has consistently been that the bid is "ballparks" away from a fair offer.
The two companies have sparred over who had the better growth rate. Rio maintained that it expected to grow at a compound annual growth rate of 8.6% for the next seven years. BHP countered that it did not believe those numbers. In its view Rio would growth by 6% a year for the next five years. BHP, on the other hand, says it will grow at 6.9%.
Lots of people are unhappy — mainly customers
This, for sure, is no friendly takeover — the atmosphere is strongly hostile. And not just from Rio. All sorts of interested parties are doing their best to block the bid, too.
Major objectors are customers. The fear is that without competition, BHP will be able to charge whatever prices it likes. It would become a super mining major with sway over the global supply of a large number of minerals and metals.
The Chinese have taken their concern as far as buying a chunk of Rio to protect it. Earlier this year Chinalco and the US aluminium giant Alcoa bought 9 per cent of Rio in a $14bn raid. This is the largest single shareholding.
Even if the Commission sanctions the deal, there is a long way still to go. Regulators in other jurisdictions where the companies do business must clear the bid. That is Australia, the US and South Africa for starters. Only then, and if they give a thumbs up, does the last stage start — the finale of the Rio shareholders’ decision.
Things had gone quiet for weeks before the EU story broke. Having started the bid with some pretty public rows, both companies went behind the scenes for the various talks that have been going on non-stop.
Informal talks have been held with regulators, and these had begun to leak out. The EU, for instance, is said to believe that the market strength of the combined company would inevitably lead to price hikes. This would slow economic growth even further. The Wall Street Journal put the cat among the pigeons by saying that the EU was really unhappy.
Both companies have also been going the round of shareholders, putting their cases directly.
Some shareholders had been thinking the offer would be increased before now. No sign of any hike yet, however.
A case for asset upgrades here?
The battle moved back into the open last week. Rio held a marathon seminar in London. The aim was to show BHP’s bid as far, far too cheap. Rio wants the market to revalue its assets too, in the light of a forecast that world demand for its metals will double by 2022. Chinese growth is major factor in its new predictions.
Managing director Tom Albanese said that with each passing year "people have been taking what we believe is a more realistic view of the total China story".
"In that environment, greenfield projects are becoming more valuable. And I think they will continue to be more valuable in the future," he said.
Rio has been trading at a discount to the bid
His comments come as Rio's share price traded at a discount of over 8% discount to the implied value of BHP's offer. Mr Albanese blamed this on uncertainty about when the bid would proceed. But he stopped well short of saying that BHP's 3.4-for-1 offer was nearing the ballpark in terms of value.
"We've said in the past that the board has reviewed the BHP Billiton pre-conditional takeover offer," he said. "We took it seriously. We rejected it. We rejected it on the basis of value. Rio Tinto as a stand-alone company is worth much, much more than anything that we've seen presented to us."
But he did not succeed last week in propelling the Rio share price to above the bid level.
BHP will probably wait until the regulatory processes are all finished before adding any sweeteners. Anyway, the current view is, it won’t put up its offer until posting formal offer document.
Timing? Probably late 2008 at best!
Keep mining.
Erin and Isabel
