Global miner Rio Tinto Plc. (RIO) announced that it has raised its stake in Australia-based Riversdale Mining Limited. Currently, the company has 98,247,606 shares of Riversdale, representing 41.51%, up from 20.95%.
The company also declared that the bid is unconditional, implying the abandonment of Riversdale’s majority shareholders’ acceptance condition. Furthermore, to attract the shareholders, the company has announced a raise in the offer price by $0.50 to $16.50 if Rio Tinto obtains more than a 47% stake by April 6, 2011.
Management stated that if the company manages to obtain more than 47% by April 6, 2011, Rio Tinto will pay the increase of $0.50 in the offer price to Riversdale shareholders who had accepted the offer prior to obtaining more than 47.0% stake.
Earlier, Rio Tinto had extended the offer period for acquiring Riversdale by three working days to April 6, 2011.
In December 2010, Rio Tinto offered to purchase Riversdale’s shares for A$16 per share, bringing the total consideration to A$3.9 billion. The offer price of A$16 represented a 46% premium to the one-month volume weighted average price (VWAP) of Riversdale shares on November 3 and 24% premium to the one-month VWAP of Riversdale shares on December 3.
The company expects that Riversdale’s acquisition will increase Rio Tinto’s production at a much lower cost. In addition, Riversdale’s coal projects and anthracite colliery in Africa will support Rio Tinto’s growth strategy of investing in developing and operating large, long-term, cost-competitive mines and businesses.
Headquartered in London, United Kingdom, Rio Tinto engages in exploring, mining and processing the earth’s mineral resources. The company faces tough competition from Vale S.A. (VALE), BHP Billiton (BHP) and Anglo American plc.
We expect Rio Tinto to gain from its massive investment plan and cost reduction strategy amid improved market conditions. However, at the moment we believe that the ADR is quite expensive. Thus, we have a Neutral recommendation on the ADR with a Zacks #3 Rank, translating into a short-term rating of Hold.
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