The cheer squad of nationalists and believers in national champions are willing to suspend critical judgment on the proposed takeover of Rio Tinto and BHP Billiton, but not so the market or those shareholders with a critical facility or three.
BHP shares shed another 77c for the second day in a row yesterday in Australia to close at $41.52, while Rio shares added $8.82 to $139.72.
Based on its three for one ratio, the BHP offer is valued at $125.10, over $14 under the Rio share price.
A belated attempt to spin the benefits of the BHP offer yesterday failed: BHP shares slumped and the Rio share price surged afterwards as investors realised that the Big Australian was trying to steal Rio on the cheap.
The Aussie dollar continued its sharp slide overnight, touching 87.88 USc, compared to 92.85 on Friday in Sydney. That's a worrying fall of more than 5%: the instability could be enough to halt the offer for the time being if it continues for much longer.
It seems the Rio board is intent on extracting the highest possible price from BHP, something north of $140 a share, and a growing number of local institutions agree with them.
Commentary from broking and investment bank and other analysts can be discounted, especially if they are fully in favour of the deal.
They or their corporate departments sniff money to be made, while fund managers are sitting on fat capital profits.
BHP yesterday promised a $US30 billion share buyback if the takeover succeeds. That will represent a looting of the tax coffers of the Australian Government if that happens.
It is nothing but an attempt to promise a cash component in the offer, without actually one being offered.
The buyback will effectively be financed by the Australian Tax Office.
There is also a bit of Melbourne versus the rest of Australia and the world here.
Here is Melbourne's chance to reassert itself as the business capital of Australia with this deal, in fact a global business centre compared to Sydney.
We should not underestimate the left behind feeling the Melbourne business community and business media have about the way the country's former business capital has been overtaken by Sydney.
BHP's clubby attempts to merge/ takeover its Melbourne mining rival has a sniff of a home town deal, with expectations the rest of Australia will fall in behind because a global champion is being created.
Does anyone remember the previous 'mega deals' that grabbed worldwide attention.
The Vodafone and Mannesmann merger in 2000. The joined Vodafone-Mannesmann entity, which was worth 225 billion pounds at the time of the merger, is now valued at only 95 billion pounds. A lot of value destroyed there).
There have been two chief executives and billions of dollars in assets sold to try and turn Vodafone back into what it was a strongly performing growth stock.
And, don't mention the AOL -Time Warner merger worth $US 250 billion. It was notable for one thing: marking the peak of the net, tech and dot com madness from which the US has still to recover. In fact you can trace some of the present subprime mortgage crisis back to the collapse of that boom and the thinking in the AOL-Time deal.
Time Warner (AOL has been consigned to the footnotes of the annual report) has just appointed a new CEO who has made it clear he will sell, slim and break-up the media megalith to improve performance.
You can bet in a decade or so if the BHP-Rio bid succeeds we will be reading of plans from a new CEO to do the same thing. Bigness doesn't produce out-performance.
Look at the way General Electric, an admirably run company, has under-performed the US market in the past seven years, and managed to lose over $US1 billion in ill-advised dabblings in subprime mortgages and other securities thorough its GE Money arm.
BHP expects a combination with Rio to generate annual cost savings of $US3.7 billion.
But in contrast to the spin, the cost savings would take up to seven years to be realised, if at all.
BHP also revealed plans for the $US30 billion share buyback should the takeover approach.
The claimed cost savings and share buyback were revealed in an 18 page statement arguing its case to the ASX at lunchtime yesterday.
It was a statement (http://www.asx.com.au/asxpdf/20071112/pdf/315rp70s3604fh.pdf) which arguably should have been released on Friday when the news was forced out by regulators in London.
BHP says it is offering a premium of 28% over the Rio share price in all of October, but shareholders have already indicated they wouldn't object to a premium as high as 60%. That 28% premium is based on relative share prices on October 31. A week later and the premium was down to 15%. Yesterday there was no premium, but a discount.
"The board of BHP Billiton has sought and continues to seek to engage in discussions with Rio Tinto with a view to obtaining the support and recommendation of the board of Rio Tinto,'' BHP said. "To date Rio Tinto has not agreed to these discussions.''
It was an attempt, two days late, to put pressure on the Rio board to consider its proposal to create a $US 400 billion mining giant.
The Big Australian has released a nine-page document with another nine pages of appendices, outlining the benefits of its three-for-one share proposal to the stock exchange, in an effort to force Rio's board to enter discussions. Rio has refused to meet with BHP until it raises its proposed offer.
Rio shares peaked at a mad $149.99 in Australia yesterday and closed $10 lower. BHP shares fell to a low of $41.52, reached in the late afternoon as the broader market fell sharply on more worries about the health of global banks and the US financial system.
Despite what some analysts might think, the future direction of this bid will depend
