BHP sends love letter to shareholders

SHAREHOLDERS in both BHP Billiton and Rio Tinto understand the logic of BHP’s hostile takeover bid for its competitor, the major said today, as the slow dance between the two companies continues.

Kate Haycock

In a letter to shareholders, BHP said it had held extensive consultations with the shareholders and stakeholders of both companies, which have indicated “a clear understanding of the logic of the combination”.

BHP made its formal, all-scrip bid for Rio last week, offering shareholders 3.4 BHP shares for every Rio share, in a play estimated to be worth somewhere around $A190 billion.

The BHP offer is subject to a number of pre-conditions which may not be satisfied until the end of this year, so the battle between the two company’s boards for the hearts and minds of shareholders will be a protracted one.

BHP’s letter comes a day after Rio’s board has rejected the offer, claiming it continues to undervalue the company’s assets and its future growth capacity.

In the letter, BHP said the combination of the two companies would be “without comparison in the natural resources industry”.

BHP also called its hostile takeover bid for Rio “compelling and reasonable” and reiterated chief executive Marius Kloppers’ statement last year that the company had been patient and would continue to be disciplined in its pursuit of the acquisition.

A combined Rio and BHP would have a massive portfolio encompassing some of the world’s largest iron ore, copper and coal projects.

The takeover, should it go ahead, would be subject to complicated regulatory approvals in both Australia and the United Kingdom.

Shares in BHP were last trading at $36.10 on the Australian bourse, up 25c in mid-morning trade, while Rio was last at $123.80, up $2.03. At these share prices, BHP’s offer is worth $122.74, $1.06 less than Rio’s current price.

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