As expected Rio Tinto shareholders in London have followed the board’s lead and plumped for the revised offer from China’s Yancoal.
The meeting in the British side of the company was held at 8pm Sydney time and was quickly over. Now shareholders in the Australian arm are due to meeting in Melbourne later today.
Approval of the Yancoal offer is expected to be a foregone conclusion, but analysts say Glencore won’t go away and will probably try to do a deal with Yancoal.
Yancoal’s third offer (the first was $US2.45 billion lifted its price from $US2.55 billion to $US2.69 billion – $US1.5 million more than Glencore’s second offer.
Glencore’s offer was subject to approval by Rio by Monday, June 26.
Yancoal’s total consideration of $US2.69 billion, comprises $US2.45 billion in cash payable in full on completion, as well as $US240 million via unconditional guaranteed royalty payments of which $US200 million will be received before the end of 2018. An increased break fee amount provided by Yancoal’s parent company, Yankuang, from $US100 million to $US225 million.
Yancoal’s offer also includes financial assistance of $US2.1 billion from state-owned parent Yankuang Group. Rio said Yancoal’s revised offer provides “greater transaction certainty” with all the regulatory approvals received. It is likely to complete during the third quarter, “whereas any transaction with Glencore is unlikely to complete until the first half of 2018 at the earliest.”
“The revised offer from Yancoal of $2.69bn offers compelling value to our shareholders for our Australian thermal coal assets,” Rio’s chief executive Jean-Sebastien Jacques, said in his statement on Monday which was repeated to the London meeting.
“This sale process has been in progress for a long period of time and we believe it is in the best interests of our shareholders to take the greater certainty of Yancoal’s strong proposal.”
Rio also wants to keep sweet with the Chinese government seeing Chinalco is its biggest shareholder with 13% and Rio and it have done a couple of deals together. At the same time the Chinese steel industry is the biggest buyers of Rio Tinto’s most valuable asset, its WA iron ore output. With an oversupply of iron ore globally, it would be fairly easy for the Chinese to hurt Rio if it didn’t like a sale to Glencore.
Rio’s Allied Coal business includes majority stakes in the Hunter Valley Operations and the Mount Thorley Warkworth mine, and a 36.5 per cent interest in the Newcastle Port coal export terminal. Yancoal owns 7 Australian coal mines.
