Yahoo Finance Rio Tinto snubs Glencore's latest coal bid as Chinese return with better offer
Rio Tinto has spurned its FTSE 100 peer Glencore for a second time after accepting a sweetened offer from Chinese-backed Yancoal for its Australian coal business.
Coal & Allied, a mining company in New South Wales, has become the centre of a bidding war as Yancoal and Glencore compete for the right to buy coal for export to Japan and other Asian nations.
Rio confirmed on Monday that it would opt for Yancoal’s revised bid of $2.69bn, which includes at least $2.45bn in cash on completion. Yancoal, which is listed in Australia but majority owned by China’s Yanzhou and backed by the Chinese state, has also agreed to raise its break fee from $100m to $225m, which will be payable should the deal collapse.
Rio said Yancoal’s offer was bigger and offered a “greater level of completion certainty” as it has already gained approval from regulators in China and Japan, among others. The Anglo-Australian group is backing out of coal in favour of other metals and hopes that the deal will complete as early as September.
Yancoal has been Rio’s preferred bidder since its offer was first announced in January, but talks have dragged on amid questions over whether the debt-laden firm has financing in place. It has now assured Rio that it has $2.1bn backing from Yanzhou’s state-owned parent Yankuang Group.
Jean-Sebastien Jacques, Rio’s chief executive, said: “This sale process has been in progress for a long period of time and we believe it is in the best interests of our shareholders to take the greater certainty of Yancoal's strong proposal."
Last week Glencore raised its bid to $2.68bn and offered to compensate Rio for each month of delay it took for it to acquire all the necessary approvals. However a source close to Rio said these assurances contained a number of “conditionalities” and did not “compensate sufficiently”.
As well as offering cash upfront, Glencore was able to point out it had already received clearance from regulators in Japan, which imports the majority of Coal & Allied’s coal. The Switzerland-based group, led by Ivan Glasenberg, has coal mines adjacent to Rio’s operations and believes it could achieve big savings by putting the two together.
Rio will now put the Yancoal deal to a vote of its shareholders at special meetings in London tomorrow and Sydney on Thursday. This is necessary because both Rio and Yancoal are part-owned by companies backed by the Chinese government, making it a related party transaction. Rio is 10pc owned by Chinalco as a result of a deal in 2009.
Some commentators have suggested that Rio’s reluctance to sell its coal mines to Glencore stems from its desire not to antagonise its Chinese investors but the company has refuted this.
