ANGLO-AUSTRALIAN miner Rio Tinto offered $3.9bn (£2.5bn) to buy African-focussed coal miner Riversdale in an agreed deal that is likely to be challenged by rivals seeking to secure coking coal reserves.
Rio's first big acquisition since its ill-timed Alcan buy in 2007 is a play on soaring Asian demand for the key steel-making ingredient, but needs the backing of at least one of Riversdale's three large shareholders, including India's Tata Steel and Brazilian steel group CSN.
While fund managers said the steelmakers may oppose Rio's offer, Riversdale's managing director Steve Mallyon said he expected a positive response.
The company's third largest shareholder, US-based fund Passport Capital, had committed an unspecified number of its shares to a pre-bid agreement that gives Rio Tinto options over 14.9 per cent of Riversdale's stock, Mallyon said.
"There has been no reaction either way although Passport has put some of its shares into the pre-bid agreement," Mallyon said. "I would think the reaction from CSN and Tata would be generally positive."
Tata Steel, whose Riversdale board nominee abstained from voting on the bid, declined to comment.
Rio, which wants access to Riversdale's coking coal deposits in Mozambique, raised its offer to A$16 per share cash today from an earlier indicative bid of A$15.
Resuming trade after a two-day suspension, Riversdale's shares closed 1.7 per cent firmer at A$16.57, indicating investors were expecting a higher offer.
"I think there is a strong potential (for rival bids)," said Andrew Harrington, an analyst at Paterson Securities in Sydney.
"There aren't that many big new coking coal assets out there and this one is very large and it's near to production."
A group of state-run Indian firms including NTSC have indicated they were looking at Riversdale, with a source at a member of the consortium saying yesterday it would decide soon whether to bid.
Other interested parties taking a look at Riversdale include Anglo American, ArcelorMittal and Strata, sources familiar with the matter and fund managers have said.
Riversdale had held discussions with a number of parties on potential partnerships but was not in takeover talks with anyone else, Mallyon said, before heading to the beach after intensive negotiations to secure a deal with Rio ahead of the Christmas break.
"I've got the board on the (car) roof. When I told everyone I was going to a board meeting it wasn't the kind they were thinking about. I am ready for a nice surf," he said.