Rio Tinto teams up with Mitsubishi in bid to take control of rival miner

Rio and Mitsubishi offered A$122 a share, a 34 per cent premium to the coal miner’s last trade, to buy out the 14 per cent they do not already own. Coal & Allied shares surged 28 per cent to a four-month high.

Top institutional shareholder Perpetual Investments, which owns 6.3 per cent, backed the offer. That makes the takeover 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 takeover targets as the demand boom from China and India driving commodity prices is expected to continue. The bid follows Peabody Energy and ArcelorMittal’s £3bn hostile bid for Macarthur Coal and Rio Tinto’s $4bn takeover of Mozambique-focussed coal miner Riversdale Mining earlier this year.

Mitsubishi appeared set to fund about 70 per cent of the deal and the proposal would see it double its stake in Coal & Allied to 20 per cent. Rio Tinto would increase its stake to 80 from 75.7 per cent.

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.

Coal & Allied said the offer, valuing the whole group at $11.1bn, was incomplete and was not capable of being accepted.

“We will be carefully considering the indicative proposal, but at this stage have not formed any views in relation to either whether a shareholder meeting will be convened, or, more generally, the indicative proposal, including price,” said Bryan Davis, chairman of Coal & Allied’s proposal response committee.