UPDATE: BHP plans $30 billion buyback of Rio shares

Source: Exec Digital USA

Date :11/12/2007 7:19:23 AM

BHP Billiton Ltd/Plc, the world's largest mining company, laid out a plan on Monday for acquiring Rio Tinto Ltd/Plc , saying it would buyback $30 billion of its shares if the deal is successful.

The mining giant's new chief executive, Marius Kloppers, will further step up the pressure to draw Rio's board into talks by personally pitching BHP's $140 billion takeover proposal to big Rio shareholders.

The proposals include a promise to have a $30 billion (£14 billion) share buyback if the deal goes ahead.

However, a Rio Tinto spokesman reiterated that the approach from BHP was still "well out of the ballpark" and significantly undervalued it.

Annual savings

BHP said a merger with Rio could result in $3.7 billion in annual savings, seven years after completion, through synergies in iron ore, coal and other activities.

The savings would mostly be through higher production runs and efficiencies of scale and help insulate against cyclical downswings in commodities markets, it said.

Cash flow and earnings per share would also benefit in the first year.

Market commodities

A combined BHP and Rio would have a 38 percent market share in global seaborne iron-ore trade with both companies have iron ore and uranium mines in Australia.

If the deal goes through, the group could overtake Brazil's Cia. Vale do Rio Doce as the world's biggest iron-ore exporter as demand from China surges.

Moreover, the combined company would have the world's biggest energy coal and copper reserve with operations in all six inhabited continents, as both jointly own stakes in Chile's Escondida, the world's largest copper mine.

Supporting bid

On Thursday, Rio Tinto rejected BHP’s initial takeover approach at a premium of about 20 percent to Wednesday night's closing share price.

Melbourne-based BHP said it would now seek to gather support for its takeover plans.

"BHP Billiton now considers it appropriate to make BHP Billiton and Rio Tinto shareholders aware of its proposal so it can seek their support for discussions between the two companies," BHP said.

It has already dispatched advisers Citigroup and Goldman Sachs to arrange $70 billion in debt refinancing to help pay for a takeover.

November 12, 2007