Rio Tinto and Mitsubishi Corp have proposed buying out Coal & Allied for A$1.49 billion ($1.56 billion), aiming to take full control of the Australian miner to take advantage of strong coal prices. Rio and Mitsubishi offered A$122 a share, a 34 percent premium to the coal miner's last trade, to buy out the 14 percent they do not already own. Coal & Allied shares surged 28 percent to a four-month high.
Top institutional shareholder Perpetual Investments , which owns 6.3 percent, backed the offer. That makes the take-over nearly certain to be completed once Rio Tinto and Mitsubishi finalise their agreement to enter a joint bid. Despite a strong currency, global economic uncertainty and new taxes, Australian resource companies have been sought-after take-over targets as the demand boom from China, India driving commodity prices is expected to continue.
The bid follows Peabody Energy and ArcelorMittal's $5 billion hostile bid for Macarthur Coal and Rio Tinto's $4 billion take-over of Mozambique-focused coal miner Riversdale Mining earlier this year. Mitsubishi appeared set to fund about 70 percent of the deal and the proposal would see it double its stake in Coal & Allied to 20 percent. Rio Tinto would increase its stake to 80 percent from 75.7 percent.
That would boost Mitsubishi's equity holding in thermal coal production to nearly 13 million tonnes a year without having to pay the hefty prices that Indian companies have been paying for coal projects in Australia and Indonesia. "It would be a lot cheaper for Mitsubishi to buy shares in the company they know well than acquiring a stake in a new mine," said Yasuhiro Narita, an analyst at Nomura Securities.
Rio Tinto shareholders barely took notice of the deal on a day when the rest of the market was focused on global debt worries. "It makes sense, whether or not they believe there's value in there. They own three-quarters of the company, so they're just bringing the rest of it in-house," said Ric Ronge, a portfolio manager at Pengana Capital, which owns Rio Tinto shares.