Chinas Rio Raid May Shatter BHP Hopes

By Rupert Steiner

CHINA has flexed its muscles to the tune of Pounds 7.6bn in an attempt to thwart BHP Billitons Pounds 70bn takeover of rival Rio Tinto.

In a dramatic dawn raid, Chinalco, Chinas largest aluminium producer, together with American partner Alcoa, snapped up 12pc of Rios British stock.

This works out at 9pc of the whole company because Rio, which is the worlds third largest mining firm, also has a listing in Australia.

The raid will spark industry concern because China, which is enjoying unprecedented economic growth, is one of the worlds biggest customers for metals and moves to buy up producers could stifle competition.

The manner of the acquisition also brings into question Chinalcos true intention. Its President Xiao Yaqing claimed the move was purely strategic and said he did not intend to stage a takeover.

But the holding is too small to be a blocking stake and the presence of Alcoa, which only contributed Pounds 610m in funding, has prompted speculation that the pair might be hoping to force a break-up of the company.

The Chinese have the fire power to stage a full-blown buyout although analysts say there are few synergies between the two businesses.

The dawn raid is thought to be one of the largest in British history as well as Chinas largest overseas acquisition to date.

It comes as BHP, the worlds largest mining company, faces a Wednesday deadline to launch a formal takeover bid or walk away.

BHP is now under enormous pressure to improve the terms of its proposal. Alcoa and Chinalco paid Pounds 60-a-share for their stake a 20pc premium to the market price.

BHP would have to increase its 3-for-1 all-share offer to 4-for- 1 if it were to match the price paid by the Chinese. Rios shares leapt 644p to 5600p.

Paul Skinner, Rios chairman said: This unsolicited development, of which we had no prior notice, reinforces our view of the long term value of Rio Tinto.

Yaqing said: We have a very long horizon in this process.

This investment is driven primarily by our strategy to develop into a diversified metals company.

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