Rio Tinto (RIO) rose by as much as 15% today on the back of conjecture that the rejected $140 billion all-share offer from BHP Billiton would lead to an improved offer or would trigger rival bids.
Rio has now rejected two requests from BHP to discuss the proposal of three BHP shares for each Rio Tinto share, with Rio holding firm that the offer is too low.
The proposal set out that on a pro-forma basis, Rio Tinto shareholders would own approximately 41% of the combined group.
Since the first request from BHP last Thursday, investors have continued to bank on the world's largest mining company returning with a higher offer.
Such speculation has served to lift Rio Tinto shares by more than 30 percent since the bid was announced.
"The Board of BHP Billiton has sought and continues to seek to enagage in discussions with Rio Tinto with a view to obtaining the support and recommendation of the Board of Rio Tinto for this proposal," said BHP in a statement today.
"To date, Rio Tinto has not agreed to these discussions."
BHP said a merger could extract $4 billion in synergies through shared infrastructure and the acceleration of output, which it sees as achievable seven years subsequent to a successful merger.
"This combination is value enhancing for BHP Billiton shareholders, who also gain from a pro rata share of synergies, strengthened asset portfolio and unrivalled future growth pipeline"
BHP said the merger is "the most logical and compelling consolidation opportunity for both companies", and that if combined, the resultant company would be "without peer".
BHP believes a merger would serve to provide "faster and more efficient development" of iron ore resources in the Pilbara region of Western Australia, and the optimisation of coal operations in New South Wales and Queensland.
BHP and Rio Tinto are the largest iron ore producers in the Pilbara region.
The combined company, according to BHP, would have "greater ability and increased opportunities to develop the next generation of world-scale projects in these regions."
BHP expected the regulatory focus to centre on the combined iron ore businesses, where a combined group would have a 27 per cent share of the market.
"BHP Billiton has spent considerable time formulating its proposal to Rio Tinto and is highly confident that it can be successfully completed".
"BHP expects emerging and new low-cost producers will increase competition in what is a rapidly evolving marketplace."
Rio Tinto rose by $8.82 to close up at $139.72. Its previous close was $130.90.
BHP fell by 1.8% or 77 cents to finish the day at $41.70.
