Rio issues ultimatum to BHP

BHP Billiton may need to put its money where its mouth is soon, following Rio Tinto's application to the United Kingdom's Takeover Panel to force its bidder to put an offer on the table.
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Rebecca Lawson

The move could see BHP make a formal takeover offer for Rio within eight weeks, under the UK's so-called "put up or shut up" clause.

"Such a ruling, if made, would set a deadline by which BHP Billiton must, unless the Takeover Panel Executive consents otherwise, either announced a firm intention to make an offer for Rio Tinto plc under Rule 2.5 of the UK Takeover Code or announce that it does not intend to make an offer," Rio said this morning.

Earlier last month, BHP unveiled a three-for-one scrip proposal for Rio valued at around $150 billion.

At an investor road show last week, Rio chief Tom Albanese declared the proposed offer "dead in the water".

Fat Prophets analyst Gavin Wendt told that Rio had made a strategic move in approaching the panel to either get BHP to walk away from the proposed offer, which was a distraction of management's time, or perhaps get BHP to increase its bid.

"Rio's just bedded down the Alcan acquisition, they should be going full steam ahead to add value for shareholders," Wendt said.

"But instead they're looking over their shoulders every five minutes wondering what BHP's going to do ... its an incredible distraction for management's time.

"I don't think BHP would want to put their current proposal on the table because the market hasn't liked it.

"If BHP's interested, they're going to have to come up with a higher offer, the market's made that perfectly clear as has Rio. BHP's offer as it stands has underwhelmed the market."

Additionally there is growing speculation that Baosteel could launch a rival bid for Rio after its shares were placed in a trading halt yesterday.

The Shanghai Stock Exchange said Baosteel's shares would resume trading today.

Earlier this month there was talk of a Chinese counter-bid for Rio, with Baosteel reportedly considering an offer however the group has since quashed those rumours.

Wendt said he could not see the Foreign Investment Review Board allowing any offer for Rio by a Chinese company.

"I don't think the Chinese would be that naive, I couldn't see it being approved by the Foreign Investment Review Board," Wendt said

"I mean the Chinese would want to get their hands on iron ore and if they were to acquire Rio Tinto, the Chinese would be the biggest player in Australian iron ore. I couldn't see the Government [allowing that to happen]."

Meanwhile United States private equity giant Blackstone has denied that it had plans to make an offer for Rio, following a report in The Daily Telegraph over the weekend.