Rio Tinto continues to hold out on BHP Billiton’s predatory ambitions and wants shareholders at the annual meetings next month of the Plc company in London and the Australian company in Brisbane to approve special resolutions extending a possible share buyback for another year, even though that is one of the conditions in the BHP bid that could see it terminated.
BHP Billiton shares surged $1.54 to $37.92 on Friday in Sydney, while Rio Tinto did likewise, jumping $6.30 to $130.80. The 3.4 for one BHP offer is out of the money, valuing Rio shares at $128.92 at the close on Friday.
News of the special resolutions is contained in the Notice Of Meeting for the AGMs, released with the 2007 annual report over the weekend.
The buybacks, which were suspended when the company bought Alcan for $A44 billion last year, could see the Australian company buyback up to 28.57 million Australian Ltd company shares. There are other resolutions to be put to the AGMS which renew the London company side of the arrangements, and dividend on the DLC dividend shares.
Directors were quite frank in their decision to put the special resolutions to the AGMs, arguing in the Notice Of Meeting that the resolutions wouldn’t, in their opinion, have any impact.
But they do give themselves an out on this point, saying that they would not take a decision on either issue (buyback or dividends on the DLC dividend shares) without taking further advice.
That’s to protect themselves from any possible legal action a buyback might cause if BHP uses it to withdraw from the bid.
Directors argued that:
"The pre-conditions to the offers (from BHP Billiton to the shareholders in the Plc and Ltd companies) relate to certain identified competition and foreign investment approvals. BHPB has indicated that the satisfaction of these pre-conditions may not occur until the end of 2008. BHPB’s announcement includes a statement that, if made, the offers will be subject to a number of conditions, including (with some exceptions) that no special resolution is passed by Rio Tinto Limited or Rio Tinto plc and no shares are bought back by Rio Tinto Limited or Rio Tinto plc.
"The passing of any special resolution by Rio Tinto Limited (including resolutions 12 or 13), the undertaking of any buybacks, or, possibly, the payment of dividends on the DLC Dividend Shares, would technically trigger these conditions and, subject to applicable regulatory requirements, BHPB may seek to invoke those conditions.
"The Takeover Panel in the United Kingdom has indicated that it will not permit BHPB to invoke a condition unless the Panel is satisfied that the matter is material to the proposed offers.
"The directors consider that the passing of the resolutions set out in this notice of meeting would not be material to the proposed offers.
"Prior to taking any actions under the authorities granted pursuant to the resolutions, such as undertaking buybacks or the payment of dividends on the DLC Dividend Shares, the directors will take into account whether such actions could entitle BHPB to invoke a condition to its proposed offers.
"Consistent with its practice in prior years, the board is seeking renewal of the shareholder approval to buy back shares in the Rio Tinto Group. The overall purpose of the buyback resolutions being put to shareholders at the annual general meetings is to provide the Rio Tinto Group with flexibility in the conduct of its capital management initiatives, whether through on or off-market share buybacks in either Rio Tinto Limited or Rio Tinto plc.
"The overall purpose of the buyback resolutions being put to shareholders at the annual general meetings is to provide the Rio Tinto Group with flexibility in the conduct of its capital management initiatives, whether through on or off-market share buybacks in either Rio Tinto Limited or Rio Tinto plc. These approvals were most recently renewed at last year’s annual general meetings.
"Since that time, under those authorities, no Rio Tinto Limited shares have been bought back and Rio Tinto plc purchased 9,165,000 Rio Tinto plc ordinary shares on-market."
In his comment, Rio chairman Paul Skinner repeated previous statements about how the BHP bid doesn’t realistically value Rio.
He and CEO, Tom Albanese both told Rio shareholders the company should be insulated from the impact of a US recession by the strength of China and to a lesser extent, India.
Both ignored a much larger concern: the impact of the crisis of confidence the credit crunch is causing around the world.
Here’s what Mr Skinner said in the annual report:
"In November Rio Tinto received an unsolicited approach from BHP Billiton proposing a combination of the companies. This was fully considered by the board and rejected on the basis that it significantly undervalued Rio Tinto’s assets and future prospects.
"On 6 February 2008, BHP Billiton announced pre-conditional takeover offers for Rio Tinto of 3.4 BHP Billiton shares for each Rio Tinto share. The board gave this careful consideration and concluded that the offers still significantly undervalue Rio Tinto.
"The board unanimously rejected the pre-conditional offers as not being in the best interests of Rio Tinto shareholders. The offers, while improved, still fail to recognise the underlying value of Rio Tinto’s high quality assets and prospects. Our plans are unchanged and will remain so unless a proposal is made that fully reflects the value of Rio Tinto. Meanwhile we will forge ahead with our stated strategy.
"We are seeing a dramatic change in the world’s centres of economic power, with rapid growth, urbanisation and industrialisation in many parts of the developing world. We expect a large part of the world’s population – billions of people – to mo
