Fernando MonteiroThe Rio Tinto Saga
May 31st 2009 13:35
Rio Tinto is a remarkable Australian company. It’s has been through something less of its dignity, though. Just as a note, Rio Tinto achieved in December 2008 revenues of $78,325.6 million and net profit of $5,306.0 million while its equity has topped $29,789.3 million – a set of impressive figures. Yet, it has been through a lot of criticism lately. What is wrong with Rio Tinto?
In the year ended 2008 two things combined to make Rio Tinto an underperformer: they were the BHP Billiton rejected takeover attempt and the purchase of Alcan. By today’s’ rule, the 2008 BHP takeover offer of three and a half shares to one was very good. Yet Rio shunned it. Concomitantly, Rio’s management bought Alcan at the top of the market for $1.8 billion.
More closely, Rio’s management is in taters to make shareholders accept the proposal by Chinalco of China to buy a substantial part of it for a bond payment. This leaves out most existing shareholders whose shareholding percentage will decrease.
Rio Tinto’s long-term debt is already $49,904.157 million, a gearing of 59 per cent. It will have to refinance some of it soon and, if not being able to do so, it will desperately need an injection of capital to replace it. Chinalco then seems like a good idea.
Chinalco, though, is a Chinese state owned company, not guided by profit motives and market discipline. Besides than that, it would introduce into Rio’s decision making in prices of future iron ore deliveries, through the election of two directors, an element of conflict. Who would these two directors be acting on behalf of: the Rio Tinto’s Australian shareholders or the Chinese government?
An approach by BHP Billiton would be most welcomed by Rio Tinto at this stage, I guess, but is Marius Kloppers about to do it? Meanwhile, will the Australian shareholders buy into the Chinalco proposition? What else is there leftover? I wonder what the end of this saga will be.
In the year ended 2008 two things combined to make Rio Tinto an underperformer: they were the BHP Billiton rejected takeover attempt and the purchase of Alcan. By today’s’ rule, the 2008 BHP takeover offer of three and a half shares to one was very good. Yet Rio shunned it. Concomitantly, Rio’s management bought Alcan at the top of the market for $1.8 billion.
More closely, Rio’s management is in taters to make shareholders accept the proposal by Chinalco of China to buy a substantial part of it for a bond payment. This leaves out most existing shareholders whose shareholding percentage will decrease.
Rio Tinto’s long-term debt is already $49,904.157 million, a gearing of 59 per cent. It will have to refinance some of it soon and, if not being able to do so, it will desperately need an injection of capital to replace it. Chinalco then seems like a good idea.
Chinalco, though, is a Chinese state owned company, not guided by profit motives and market discipline. Besides than that, it would introduce into Rio’s decision making in prices of future iron ore deliveries, through the election of two directors, an element of conflict. Who would these two directors be acting on behalf of: the Rio Tinto’s Australian shareholders or the Chinese government?
An approach by BHP Billiton would be most welcomed by Rio Tinto at this stage, I guess, but is Marius Kloppers about to do it? Meanwhile, will the Australian shareholders buy into the Chinalco proposition? What else is there leftover? I wonder what the end of this saga will be.
| 34 |
| Vote |
subscribe to this blog
