Tychon Aiyash blog

Rio Tinto wins full Riversdale support for $3.9 billion bid

MELBOURNE/SYDNEY (Reuters) – Rio Tinto's (RIO.AX)(RIO.L) $3.9 billion bid for Africa-focused coal miner Riversdale (RIV.AX) gained steam on Monday after a representative of Riversdale's top shareholder Tata Steel (TISC.BO) backed the offer.

The full board of Riversdale, coveted for its coal projects in Mozambique, recommended the bid saying it was unaware of any other offers in the works, even as an Indian consortium said it planned to decide on January 27 whether to bid.

Riversdale Managing Director Steve Mallyon said his company "had not had one call" from the consortium, called ICVL and made up of an Indian steel maker, iron ore miner and a utility, which may be interested in the coal for its own use.

"I've met a couple of the companies in ICVL (in the past) and I am at a loss to understand the interest," Mallyon said.

Mallyon said negotiations were already underway to sell a large portion of the company's future coking coal to steelmakers in Brazil, Europe and possibly China and talks were in a late stage to tie up the company's thermal coal output with a major commodities trading house, leaving little for Indian buyers.

"So we've only got about 10 million tonnes of coking coal to play with for a number of years and that's not a lot to play with," Mallyon said. "This does not seem to be the type of tonnes the Indians would be seeking."

Tata Steel has already signed a supply agreement for 40 percent of the production from Riversdale's main Benga mine, scheduled to start up this year.

As of Monday, no superior proposal to Rio Tinto's offer had been received, Riversdale said in a statement after releasing its official response to Rio Tinto's bid, adding the company was not aware of any party having an intention to make such a proposal.

While Tata Steel's representative on Riversdale's board, N.K. Misra, recommended Rio Tinto's offer, Mallyon said his support was not a sign of Tata Steel's intent for its Riversdale stake.

"I'm not privy how they (Tata) are going to handle this, with our Tata director we've been focused on the Riversdale board recommendation versus what Tata wants to do," Mallyon said.

"I think as Tata gets to know Rio Tinto as well as we do, they will then make a decision, but I don't think they are at that point yet," Mallyon said.

Given that Misra is Tata's head of mergers and acquisitions, his recommendation of Rio Tinto's bid at least makes it clear that Tata Steel itself is not planning to trump Rio Tinto.

Riversdale's shares rose 1.2 percent to A$16.50, only a 3 percent premium to Rio's A$16 a share offer, indicating investors are not expecting a higher offer to emerge.

"If no one else comes in, I suspect this deal is going to get done as it is," said Hayden Bairstow, resources analyst at CLSA, adding that any new bidder would probably have to pay A$18-A$20 a share.

Rio Tinto declined to comment on Riversdale's formal recommendation of the offer.

When the deal was first announced in December, Misra abstained from voting on the offer. Riversdale said he now backed the offer in his capacity as a Riversdale board member.

Riversdale's two biggest shareholders, steel makers Tata Steel with 24.2 percent and Brazil's CSN (CSNA3.SA) with 16.29 percent, are both mainly interested in locking in coking coal supplies but have yet to commit to Rio's offer, due to close on February 18.

Rio Tinto is holding talks with Tata Steel about its stake, a source close to the transaction said.

Riversdale's third-largest shareholder Passport Capital has been trimming its stake from 15.69 percent over the past few weeks, indicating it is not holding out for a higher offer.

CLSA's Bairstow still thinks it is possible the Indian consortium, International Coal Ventures Ltd (ICVL), could launch a higher bid, as devastating floods in Australia have disrupted coal mining and driven up coal prices, highlighting the need for alternative supply sources.

"I still think there is some chance, but it diminishes by the day," he said.

The consortium consists of utility NTPC (NTPC.BO), Steel Authority of India Ltd (SAIL.BO), iron ore miner NMDC (NMDC.BO), Coal India (COAL.BO) and steel maker Rashtriya Ispat Nigam Ltd.

A source familiar with the deal said the consortium's advisers at Citi had recommended they pursue a counter bid, but ICVL does not have to follow that suggestion if it believes a bid is not viable.

Australia's Foreign Investment Review Board cleared Rio's bid on Friday.

Riversdale said talks with its Chinese shareholder Wuhan Iron & Steel Corp (600005.SS) over acquiring a stake in the Zambeze coal project in Mozambique have been suspended while Rio's offer remains on the table.

(Additional reporting by Sumeet Chatterjee in Mumbai and Michael Smith in Sydney; Editing by Balazs Koranyi)