Two of the big deals of 2007 have reached interesting stages;
Wesfarmers has confirmed the worst kept secret in recent months: that it needs $2-$3 billion and can’t get it from capital markets at a cost satisfactory to it.
And the BHP Billiton to lift its offer for Rio Tinto was paraded out again yesterday after getting a run late Wednesday here and in offshore markets that night.
Rio shares rose to a four-month high in trading yesterday on speculation BHP Billiton may increase its $US147 billion ($158 billion) hostile bid for the company.
The stock rose as much as $6.41, or 4.6%, to $147.01 on the ASX before fading in the afternoon to end up $5.40 at $146 a share.
Rio’s London-based shares rose 6% to their highest in more than 18 years on Wednesday night as the story spread of a ‘higher’ bid from BHP.
BHP executives were claimed to have cancelled meetings in London to attend an emergency board meeting, feeding expectations it would raise its offer.
BHP could include a cash component of 10 pounds a share and still show earnings-per-share gains of 10%, Michael Rawlinson, head of mining, resources and energy, at Liberum Capital Ltd. in London, wrote in an April 14 report.
BHP may increase the bid before its application this month for antitrust approval to the European Commission, he wrote.
Well it is London and most of the beat ups tend to come out of there and Beijing (The Australian newspaper had the Chinese marshalling their forces yesterday for a $22 billion tilt at BHP shares, or something close to that).
Rio said it was about a quarter of the way through a plan to sell $US10 billion in assets this year to offset some of the $US39 billion it paid for the Canadian aluminium maker Alcan.
Rio said it had completed the sale of its 70.3% interest in the Greens Creek gold mine in Alaska to an affiliate of Hecla Mining for $US700 million in cash and $US50 million in Hecla stock.
"Rio Tinto has achieved close to one quarter of its target of realising asset sales of $US10 billion in 2008,” the company said.
Rio rejected a sweetened all-stock offer by from BHP of 3.4 shares for each Rio share in February, saying the bid "significantly” undervalued its mines and growth prospects. At that ratio and BHP’s closing price yesterday of $43.39, the offer was worth $147.52.
Meanwhile Wesfarmers moved quickly to get their shares suspended from trading yesterday after media reports that it was contemplating a possible equity raising of $2.5 billion.
The raising was said to be because it can’t roll over $3 billion in short term debt incurred in the takeover last year of Coles Myer.
It has raised $US650 million in the US in a high cost bond issue, but that’s all it has been able to refinance at an acceptable cost.
CEO Richard Goyder said in a statement to the ASX that while the company was well advanced in its preparations to complete the refinancing, it was not in a position to announce any details.
"We have consistently said we are considering a range of options to complete the refinancing," he said in the statement.
The Australian Financial Review reported on Thursday that Wesfarmers was considering a multi-billion dollar equity raising to refinance debt related to a bridging facility which supported its $20 billion takeover of Coles Group last year.
"If Wesfarmers were to choose to pursue an equity raising as suggested in today’s newspaper report, it would strongly favour an outcome that would give all eligible existing shareholders the opportunity to participate," Mr Goyder said.
The trading halt is likely to remain in place until Monday.
Investment banks including Credit Suisse, GoldmanSachs JBWere, ABN AMRO and Macquarie Group are said to be involved in a possible equity raising.
WES has until October to refinance debt that helped fund last year’s $18.2 billion acquisition of Coles.
Wesfarmers is paying more than 11% on $US650 million ($691.8 million) of bonds it sold in the US this month, when converted into Australian dollars, according to Goldman Sachs JBWere.
Wesfarmers shares closed yesterday at $36.97 and have fallen 8.7% this year, compared with a 13% decline for the ASX 200 Index.
The stock is down 19% since agreeing to buy Coles in early July, last year.
