Chinalco, Alcoa Acquire 12% Stake in Rio Tinto

123jump.com Staff
01 Feb, 2008
New York City

Chinalco and Alcoa have teamed to acquire 12% stake in UK mining company Rio Tinto. The surprise investment appears to have been made to prevent BHP from acquiring Rio Tinto. Chinalco will control 9% and Alcoa will control 3% in Rio Tinto. The 12% stake was acquired with an investment of $14 billion and purchased at 60 pounds per share, a 21% premium from closing price on yesterday. Alcoa contributed $1.2 billion in the stake purchase.

[R]8:00AM New York – Alcoa and Chinalco have teamed up to acquire a 12% stake in Rio Tinto. The stake may throw a significant hurdle in BHP’s ability to acquire Rio Tinto.[/R]

Chinalco, based in China and Alcoa based in the U.S. have partnered to purchase a stake in UK traded mining company Rio Tinto. The surprise and decisive move in alliance between two aluminum companies appear in response to prevent a takeover of Rio Tinto by BHP Billiton.

Rio Tinto and BHP Billiton have been locked in a hostile takeover that has Chinese industrial companies and China worried. If combined, BHP and Rio may have a power to raise prices and control supply of wide variety of commodities that China needs to sustain its industrial development.

If merged, BHP and Rio Tinto merger would be the second largest in the world and is likely to be the world leader in several minerals and commodities production, including iron ore, coal, aluminum, and coal. The proposed merger between the two companies would be worth more than $300 billion at the current market price.

The acquisition was made through a Singapore based investment vehicle wholly controlled by Chalco. Alco contributed its stake of $1.2 billion to the investment vehicle Shining Prospect Pte.

The unit of Chinalco, Chalco or Aluminum Company of China, and Alcoa bought 7.2 billion pounds ($14 billion) an estimated stake of 12% in the UK traded Rio Tinto. The stake was purchased by Lehman Brothers at 21% premium to the close price of yesterday, at 60 pounds. The purchased will be 9%, if stocks traded in Australia are counted.

Rio Tinto surged 780 pence to 5,736 pence, but traded below the purchase paid by the two companies. BHP also increased 130 pence to 1,607 pence.

Lehman Brothers said that it has acquired the stake for Shining Prospect for Chinalco. Chinalco and Alcoa do not plan to make an offer for Rio at this time but reserve the right to make an offer if another party, meaning BHP, made an offer for Rio.

The 12% stake acquired by Chinalco is not a controlling stake in the company but can throw significant hurdle in BHP’s efforts to acquire Rio Tinto. The purchase at 60 pounds per share is equivalent to 3.8 BHP shares for one Rio Tinto stock. BHP had proposed to offer 3 stocks for one stock of Rio Tinto.