Rio Tinto, one of the largest mining companies in the world is been in news for sometime regarding its sale, the company itself. A month back the company was in talks with China in regards to the takeover and that did not materialize for some reason. The latest in bid for Rio Tinto is the Broken Hill Proprietary Billiton (BHPB) another mining major in the world.
Marius Kloppers, the CEO of BHPB is under tremendous pressure due to the limited time he has to decide on the price which he could takeover Rio Tinto. Next Wednesday when both the companies meet, it is expected that the emphasis would be to change hands in a phased manner rather than on the current offer made by BHPB.
The share prices of BHPB have fallen by 15% in last few days and this is making it hard for the team to go for the negotiations with an open mind. The US economic recession worries are making it worse by doubting whether there would be enough interest for the mining products in the global market.
But the company counter argues that their major supplies are directed towards China and as China is poised to maintain 10% growth even in 2008, there would be sustained demand for the products. Moreover, the growth of domestic markets of emerging economies is also encouraging them to be upbeat about the takeover.
As a matter of fact, as the world’s single largest commodities customer, China would be happy if the deal ends in a fiasco because it fears the price consolidation in mining products would adversely affect its economy as a whole. Perhaps through Baosteel, its largest steel maker, or a government-owned fund, could take a blocking stake in Rio in an effort to preserve the status quo.
Keeping in perspective the imbalances in world economic growth and the company’s present market, BHPB would not budge to make any alteration to the offered bid. The deal to come to fruition, both the companies should try to convince the shareholders about the advantages they could gain through price consolidation.