China Coal Giant Awaits Rio Response to Glencore's Rival BidBy and
Yanzhou Coal offered in Jan. to buy Rio coal unit for $2.45b
Glencore on Friday said it would pay $2.55b for the business
China’s Yanzhou Coal Mining Co. is holding fire on a counteroffer for Rio Tinto Group’s Australian coal assets as it waits to hear if Glencore Plc has succeeded in trumping the deal it struck six months ago.
Glencore Chief Executive Officer Ivan Glasenberg has submitted a proposal to buy Rio’s Coal & Allied unit in New South Wales for at least $2.55 billion, the Baar, Switzerland-based producer and trader said Friday in a statement. Yanzhou’s Yancoal Australia unit in January offered $2.45 billion for the business, including an initial $1.95 billion cash payment and $500 million in annual installments of $100 million following completion.
“If Rio Tinto determines that the Glencore proposal is a superior proposal, Yancoal will have a right to match or better that proposal,” Yanzhou said in a Hong Kong exchange filing Sunday. A further announcement will be made by the company “if it receives notification from Rio Tinto in relation to whether the Glencore proposal constitutes a superior proposal,” it said.
Rio’s board and management will give the Glencore proposal “appropriate consideration and respond in due course,” the company said in a statement Friday. A Rio spokesman on Monday declined to comment further.
Yanzhou has received outbound investment approval from China’s National Development and Reform Commission and the Ministry of Commerce, as well as merger clearance from the nation’s Anti-Monopoly Bureau, it said. The company expects to receive any outstanding approvals by the end of June, according to the statement.
“The Glencore decision puts Rio Tinto in a very difficult situation,” said Helen Lau, a Hong Kong-based analyst with Argonaut Securities (Asia) Ltd. “It’s hard for the board to reject a higher offer, with better terms, but at the same time, it could be even more difficult to reject Yanzhou Coal, which has got almost all government clearance for the deal.”
If Glencore’s bid succeeds, it would also seek to buy Mitsubishi Corp.’s stakes in two coal ventures in the same area for $920 million. Glencore would sell at least $1.5 billion in assets to mitigate the cost, it said in Friday’s statement.
Yanzhou’s original deal showed signs of moving forward this week. Its $710 million (A$941 million) offer to acquire Mitsubishi’s holding in the Hunter Valley assets was accepted under a binding deal, along with a separate pact for Mitsubishi to arrange thermal coal sales into Japanese utilities, the Chinese company said in a filing to the Hong Kong stock exchange Monday. A Mitsubishi spokesman wasn’t able to immediately comment Monday outside of Tokyo business hours.
The Rio coal operations are adjacent to existing Glencore mines in Australia’s Hunter Valley, and would take Glencore’s production capacity there to 81 million metric tons a year. In 2014, Glencore and Rio considered merging their coal businesses.
“Yancoal has to wait and watch, but also has to carefully calculate whether a higher bid could justify the purchase to its own shareholders,” Lau said. “A good asset at the current price may not be a good one with another 10 percent premium. They have to make sure state investment is spent carefully and soundly on high-quality assets.”
Glencore’s bid for the coal assets comes just weeks after it expressed interest in a combination with grain trader Bunge Ltd. as Glasenberg steps up expansion efforts following a painful commodities downturn in which it was forced to sell assets and cut costs.
The trader has already returned to deal making. In December, it teamed up with shareholder Qatar Investment Authority to buy almost 20 percent of Russian oil producer Rosneft PJSC. Glencore also agreed to a $960 million Congo mining deal in February.
There is no certainty that any transaction will be concluded, Glencore said Friday, adding that the deal would be funded from existing cash and committed facilities. Glencore will only be bound once a binding share purchase agreement is concluded with Rio Tinto. The proposal expires if a binding purchase agreement hasn’t been executed by June 26.
Peter Grauer, the chairman of Bloomberg LP, is a senior independent non-executive director at Glencore.