Rio Tinto (NYSE:RTP) could take a sweetened bid from miner BHP Billiton (NYSE:BHP). Up until now, RTP have told investors that a deal is not possible.
Rio Tinto’s shareholders are probably exerting some pressure on management. After rising to $484 on BHP’s initial bid, RTP shares have dropped as low as $341 in the few trading days. Billions of dollars in market cap have dissolved. Management at Rio Tinto says it can improve returns at the company to get its share price up, but it could seem Wall St. does not believe that.
According to Reuters "Rio Tinto Chief Executive Tom Albanese on Sunday left the door open to a sweetened takeover offer from BHP.
A merger of the two companies may be a poor deal. Even with its recent dip, Rio Tinto’s shares have moved from a 52-week low of $200 to $367. If a premium offer is made to seal a deal, the price could be well over $400 a share. Commodities prices would have to continue to rise to justify such a high price for the miner, and a global slowdown could actually cause prices to retreat.
RTP’s shares are also up more than BHP’s in the last year, so, if the buy-out is mostly done in stock, the buyer it is paying a very rich price.
It is a merger that may look extremely bad a year or two from now.
Douglas A. McIntrye
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