Rio recommends Yancoal's US$2.45B C&A bid

THE Rio Tinto board has paved the way for Yancoal to be the dominant coal miner in New South Wales by reconfirming its recommendation that shareholders vote in favour of the sale of its Coal & Allied subsidiary to Yancoal for US$2.45 billion, despite an 11th hour $2.55 billion rival bid from Glencore.
Rio recommends Yancoal's US$2.45B C&A bid Rio recommends Yancoal's US$2.45B C&A bid Rio recommends Yancoal's US$2.45B C&A bid Rio recommends Yancoal's US$2.45B C&A bid Rio recommends Yancoal's US$2.45B C&A bid

Lou Caruana

Rio Tinto opted for Yancoal’s proposal based on Yancoal’s agreement to accelerate all deferred payments and make a single payment of $2.45 billion at completion to purchase the Coal & Allied coal assets in NSW’s Hunter Valley plus a coal price-linked royalty.

Yancoal sweetened the deal by amending its Sale and Purchase Agreement to acquire 100% of the shares in Coal & Allied by accelerating payment of the $500 million deferred payments so they were payable on completion.

Rio Tinto CEO Jean-Sebastien Jacques said: “We believe Yancoal’s offer to purchase our thermal coal assets for $2.45 billion offers the best value and greater transaction certainty for shareholders.

“Yancoal’s revised offer is the most attractive because it removes the deferred payment structure, can meet the timeline we have set for the transaction, and has given us certainty regarding the outstanding regulatory approvals required.

“The sale of Coal & Allied will create outstanding value for shareholders and is consistent with our strategy of simplifying our portfolio to ensure the most effective use of our capital.”

Rio said it believed that there would be a much faster completion timeframe under Yancoal’s proposal.

Yancoal said it had received or would waive all the regulatory approvals that were conditions precedent to its ability to close the deal. It agreed to waive its ‘Material Adverse Change’ termination rights and the New South Wales government approval condition precedent.

On the other hand, Glencore had not secured clearance from various jurisdictions including Australia and China or from the Korean or Taiwanese authorities and there was uncertainty those approvals could be achieved in a timely manner.

In a statement Rio Tinto said it had “engaged in active discussion with both parties and the board assessed a number of factors in its consideration of both proposals, including price and value; the risk that regulatory approvals will not be granted, or will be significantly delayed; funding certainty; and deal execution timeline”.

Yancoal intends to finance the Coal & Allied transaction through a capital raising. However, to support the Transaction, Yankuang Group Company has undertaken to Rio Tinto that if Yancoal’s capital raising does not raise at least $2.1 billion, Yankuang will place Yancoal in sufficient funds for Yancoal to pay the purchase price at completion under the sale agreement. 

Yankuang’s maximum liability under the undertaking is $2.1 billion. 

Yancoal chairman Xiyong Li said the company demonstrated the value of its offer to Rio Tinto and its shareholders and achieved an agreement in the best interests of the Coal & Allied operations and its continued future growth and investment in Australia.

“Our offer provides certainty of execution, having already achieved all key international regulatory approvals. In comparison, the Glencore bid remains subject to material regulatory risk,” he said.

Yancoal CEO Reinhold Schmidt said: “With the certainty of funding, confirmation of regulatory approvals and removal of regulatory conditions precedent, Yancoal continues to provide a compelling offer for the strategic acquisition of the Coal & Allied assets.

“As a proven operator within Australia, we have the experience, skills and local expertise required to drive further investment into the New South Wales resources sector, with an absolute commitment to maintaining the highest regulatory, safety and environmental standards.” 

A spokesman for Glencore told Australia's Mining Monthly: "We are reviewing the Rio Tinto statement and will respond in due course."