Well, it's either going to be hostile, or it will be accepted: that's if the board of Rio Tinto can make up their mind about the devil they know in their great rival, and the unknown of rejecting the $164 billion ($US147.4 billion) offer and remaining with 9% held by an unstable Chinese-US group of Chinalco and master, Alcoa.
The Rio board rejected the revamped offer last night in London, saying it "significantly" undervalued the company.
Rio Chairman Paul Skinner said in a statement BHP's bid doesn't "recognize the underlying value'' of the company. "Our plans are unchanged, and will remain so unless a proposal is made that fully reflects the value of Rio.''
The comment was not unexpected but it won't be the final word. Don't be surprised to hear of talks between the two groups (at an "unofficial" level).
In London The TImes was reporting (There have been more leaks and briefings on this deal there than anywhere else) that Japan's Fair Trade Commission might block the planned merger, and/or a group of Chinese companies were being encouraged to intervene in the deal by the country's Government.
That would be enough to get the deal approved.
The market voted yesterday. BHP shares were sold down $2.99, or 7.5% to $36.66: it was the biggest one day fall in more than 20 years for the giant.
But Rio shares, after falling to a low on the day of $125.30, rebounded to close just 21c down at $127.14.
The 3.4-for-1 scrip offer was 13% higher than the 3-for-1 proposal made public in November, although that changed after the share price movements yesterday.
At the new rate and at the BHP share price at yesterday's close, the new offer valued one Rio share at $124.64.
Based on Rio's closing price BHP share price would have to hit $37.39, to meet the new terms of the offer.
(That's around $8.80 under what Chinalco/Alcoa paid in their dawn raid in London last Friday, so they are staring down a nasty little loss at the moment on their 12% of the London listed shares.).
From the way the share prices moved yesterday the market in Australia seems to be saying BHP looks like succeeding and we don't like it.
But much will depend on the reaction in London where 80% of the shares are listed through Rio Tinto plc. They are up around 14% from when the bid was first mooted back on November 8: after yesterday's fall BHP shares here are down more than 14%.
There are a host of questions remaining to be asked. If the Rio board accepts and Chinalco says yes, it will become the largest individual shareholder in the merged company with roughly 3%.
How will the Japanese steel mills and trading houses with investments and relationships with BHP and Rio fell about that: especially Mitsubishi Development which owns 50% of the central Queensland coking coal mines in the Bowen Basin with BHP? That is a great strategic asset for Japan and is the single most important coking coal asset in the world.
The Japanese are investors: BHP has operational and marketing control.
Will the Canadian, Quebec, French and Swiss Governments give the green light to the deal: they put Rio through the hoops, especially Quebec and the Canadian Government?
Rio was forced to have an Alcan (and a Canadian) in charge of the merged aluminium business, and its head office was moved from Brisbane to Quebec. A majority of managers have to be Canadian and the group's research and development will be located in Quebec. The reason: Alcan has very cheap, very 'green' hydro power agreements with Quebec.
France will want assurances about keeping the old Pechiney businesses operating in the country (as will Switzerland) and will also want certain assurances on technology given by Alcan and Rio maintained.
Agreement and clearance from various competition authorities will be needed: especially Europe, the US and Australia.
The attitude of the Chinese Government to the deal will have to be clarified: the government isn't happy, hence it allowed Chinalco, which is government controlled, to move on Rio in London and snap up 12% with a small assist from Alcoa.
The Chinese unease at the merger adds a political dimension to the eventual clearance needed in Australia.
Australia will contain roughly 50% (a touch more) of the assets of the combined group, if it happens. The Australian Government will want to see the head office and CEO remain based here, as well as the board.
After RTZ swallowed its associate, CRA, to form Rio Tinto back in 1995, the then Federal Labor Government was dudded when the British group took control and moved the head office and most operational controls to London. Only iron ore and some coal and aluminium and alumina oversight was retained here. The Howard Government made sure it wasn't dudded like that and insisted on Australian base and an Australian CEO, or Australian base for the head office and CEO when clearing major deals, such as in the media last year.
Rio had steadfastly rejected the earlier proposal and refused to negotiate with BHP. It yesterday 'noted' the new BHP offer with its 'preconditions."
BHP chief executive Marius Kloppers deemed the new terms "compelling'', but did not rule out the possibility of signing a scheme of arrangement with Rio if the pair can agree on the terms.
The slide contributed about a third of the overall decline in the benchmark ASX/200 share index, which fell more than 3% or 183 points yesterday after wall Street slumped sharply.
BHP's bid requires the acceptance of more than 50 per cent of shareholders in the UK and Australian-listed arms of Rio.
That means Chinalco and Alcoa, which last week purchased 12 per cent of Rio's London stock, are unlikely to be able to block the bid.
