Rio Tinto shareholders are receiving an introductory letter from BHP Billiton Chairman Don Argus, five months or so after BHP finally pressed the go button and launched its 3.4 share for every Rio share offer.
BHP revealed its intention on November 8 of last year and then waited until forced to go with a formal offer in February by the London Takeovers Panel.
Now Mr Argus (known in some quarters as ‘Don’t Argue’ for his determination, especially on a hockey field and at his time at the National Australia Bank when it soared to be a financial powerhouse, unlike today) wrote to Rio Tinto Group shareholders for the first time, saying the company’s hostile $US148 billion takeover offer would generate "substantial, additional" value for investors.
"This unique overlap offers substantial opportunities to save money and add value through managing the assets as one collective group under single ownership," Argus said in the letter sent yesterday and released to the ASX.
There was a covering letter and then a glossy brochure on BHP with June 30, 2007 figures, which was a bit poor given the company’s 2008 financial year finished on June 30 last, and we’ve already had the BHP 2008 production report.
The cost of sending the letter and brochure wouold have been more than $350,000.
But this was more or a touchy feely, broad-brush communication from Mr Argus.
The letter, to impress Rio shareholders, was from the "Chairman’s Office".
"The all-share consideration means that the offer is about relative value, not absolute value. As shareholders in the merged group, you will be beneficiaries of strong demand, tight supply and high commodity prices.
"I know that many tens of thousands of the shareholders in Rio Tinto also hold shares in BHP Billiton. Whether you are a shareholder in Rio Tinto, BHP Billiton or both companies, we believe the proposed transaction makes enormous sense."
He said that BHP’s all-scrip offer is 45% higher that Rio’s share price before it made its initial proposal in November and that Rio shares would be "trading very differently" without the BHP offer.
Well, that might be the case, but then the BHP share price might be different as well.
"We expect that various regulatory processes will be completed by the end of 2008 after which we should be in a position to send the offer documents to you," Mr Argus said in his letter. That might be over-confident because it is also very possible that the European Commission might delay the offer even further while it carries out further investigations.
And, you can bet the big European, Japanese, Chinese and South Korean steel groups are telling the EC to reject the bid, not approve it.
The proposed takeover requires approval from regulators in the European Union, United States, Australia and South Africa and is currently facing a detailed second phase review from the European Commission.
Clearance from each different jurisdiction will allow BHP to formally launch its 3.4-for-one all scrip takeover offer for Rio Tinto.
Earlier this month the US Department of Justice (DoJ) and the Federal Trade Commission granted early termination of the Hart-Scott-Rodino waiting period, which satisfies part of the US merger control precondition of the proposed takeover.
The Australian Competition and Consumer Commission (ACCC) last month started its review of the proposed takeover.
Mr Argus said a merged company would be "without comparison" in the resources industry in terms of strategy, asset mix and quality, and would generate "substantial additional value for shareholders".
BHP Billiton estimates that the combined outfit could realise $US3.7 billion worth of synergies through the sharing of infrastructure and services at neighbouring assets.
Rio’s shares rose by as much as $2.82, or 2.4%, to $121.97 and closed up $2.35 at $121.50. BHP shares finished up $1.01 at $39.26. The 3.4 BHP share offer for Rio was valued at $133.48.
Everything we have heard before, so what was the point?
And Rio announced yesterday that it will invest $US2.15 billion dollars in a major expansion of its iron ore mine in Corumba, Brazil.
The company said in a statement yesterday that the investment would boost annual capacity of the mine more than five-fold from 2.4 million tonnes a year to 12.8 million tonnes, with new production starting in the fourth quarter of 2010.
Rio said it will also undertake a feasibility study for a further expansion that would take annual capacity to 23.2 million tonnes.
The company said the expansion of Corumba would capitalise on increasing demand for iron ore in South America and the Middle East and increase Rio Tinto’s presence in Europe.
"This is a very significant step forward in our drive to extend iron ore operations beyond the Pilbara region in Western Australia," said Rio Tinto chief executive Tom Albanese and the Corumba investment brings to nearly 11 billion US dollars the total capital expenditure that Rio Tinto has committed since 2003 to develop its iron ore business.
"The development of Corumba reinforces our capability to expand capacity rapidly to match increased demand wherever it occurs," Albanese said.
"The move strengthens our position as the only iron ore producer with a truly global production and growth platform, giving us
