Rio Tinto Picks $2.45 Billion Yancoal Offer for Coal Mines Over Glencore BidBy and
Rio says shareholders should back $2.45 billion Yancoal bid
Coal mine deal is first major sale by Rio’s new CEO Jacques
Rio Tinto Group backed an improved offer by China’s Yanzhou Coal Mining Co. for its Australian coal mines, snubbing a last-minute bid from Glencore Plc.
Shareholders should vote for the $2.45 billion proposal from Yancoal for the Coal & Allied unit in New South Wales, according to a statement from Rio on Tuesday. Even though the price is lower than Glencore’s $2.55 billion bid, Rio said the likelihood of regulatory approval and funding certainty made Yancoal a better choice.
“It is not surprising that Rio Tinto feels that the Yancoal offer will likely close quicker than Glencore’s,” analysts including Edward Sterck at BMO Capital Markets wrote in a research report. “Missing out may be a little disappointing for Glencore, which will remain in the hunt for alternative transactions.”
On June 9, Glencore made a surprise bid for Rio’s assets, which are near its own mines in the Hunter Valley, the region north of Sydney that supplies the world’s biggest coal export harbor at Newcastle. Yancoal responded by strengthening its offer -- choosing a single $2.45 billion payment, instead of paying a portion in annual installments.
There’s a chance that Glencore could come back with a higher bid, analysts said. A spokesman said the company plans to review Rio’s statement and may respond later.
Glencore shares slipped 2.8 percent and Rio retreated 2 percent as of 1:05 p.m. in London.
“Rio are very close to the Chinese and they probably don’t want to risk that relationship,” said Hunter Hillcoat, an analyst at Investec Plc in London. “It’s still open for Glencore to go higher.”
The deal is the first major sale of an operating asset under Rio’s new Chief Executive Officer Jean-Sebastien Jacques. Yancoal, which is 13 percent owned by Asian commodity trading giant Noble Group Ltd., said in January that the acquisition would make it Australia’s largest pure-play coal producer.
“Our offer provides certainty of execution, having already achieved all key international regulatory approvals,” Yancoal said in a separate statement on Tuesday. “In comparison, the Glencore bid remains subject to material regulatory risk.”
Yancoal 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. Yankuang Group Co, Yancoal’s biggest shareholder, provided financial assurances for the deal, the company said.
Rio shareholders will vote on the deal this month and the company expects the sale to be completed in the third quarter.
Peter Grauer, the chairman of Bloomberg LP, is a senior independent non-executive director at Glencore.