Rio lowers threshold for Riversdale bid

By Michael Smith and Sonali Paul

MELBOURNE/SYDNEY (Reuters) – Global miner Rio Tinto (RIO.AX: Quote, Profile, Research) said it would go ahead with its A$3.9 billion ($4 billion) takeover offer for Riversdale Mining (RIV.AX: Quote, Profile, Research) even if it ended up with a minority stake in the Mozambique-focused coal miner.

The offer, announced in December, was originally conditional on at least 50 percent acceptances, but so far Rio Tinto has secured only about 41 percent in its third major deal attempt since a badly timed $40 billion takeover of Alcan in 2007.

Rio was locked in talks with one of Riversdale’s top shareholders, Brazil’s biggest steel maker CSN (CSNA3.NA: Quote, Profile, Research), on Tuesday trying to secure a majority stake. Tata Steel (TISC.BO: Quote, Profile, Research) is the other major shareholder in Riversdale.

CSN said during a conference call that it was still in talks with Riversdale, but that it did not have any immediate plans to sell its stake in the firm because it sees the asset as “strategic.”

“(CSN) wants to keep (the asset) and we recognize the need to have a strong operating partner with ability” to develop Riversdale, Chief Financial Officer Paulo Penido Marques told analysts on a conference call. CSN increased its stake in Riversdale to 19.9 percent this year.

Rio Tinto revised its plan on Tuesday, saying it would pay those who had accepted its offer A$16 a share, and if it reached a 47 percent stake by April 6, it would pay A$16.50.

“Given how close they are, it looks as though they are prepared to roll the dice for another week and that buys them some time in terms of talking to CSN and until the institutional investors have a clearer picture on where they want to get to in that time,” said Tim Schroeders, who oversees funds for Pengana Capital.

Pengana owns shares in Rio Tinto.

Rio Tinto could reach its 47 percent target with the help of passive index funds who will now be likely to sell their shares into the offer. Passive funds track indexes by matching their holdings to index weightings.

With the bid declared unconditional, meaning Rio will not walk away from it, Riversdale is set to be dropped from the market’s benchmark S&P/ASX 200 index (.AXJO: Quote, Profile, Research), as its free float will likely end up at less than 30 percent.

Rio has targeted Riversdale because of its hard coking coal projects in Mozambique, which could eventually supply as much as one-tenth of the global market for the key steel-making ingredient.

Riversdale had no immediate comment on Rio’s decision, but the company is likely to be relieved, as analysts had predicted Riversdale’s shares were likely to sink below where they had been trading prior to the bid, if Rio Tinto walked away.

Rio Tinto spokeswoman Karen Halbert declined to comment on the status of the talks.

Neither CSN nor Tata wants the offer to fail but both were reluctant to reduce their holdings because it would lessen their bargaining power to control coal supplies, sources say.

Tata Steel, the world’s No. 7 steelmaker, is a long-time shareholder in Riversdale and recently increased its stake in the Australia-listed company to 27 percent.

It has a director on Riversdale’s board who backed Rio Tinto’s offer, without saying whether Tata would accept it.

Tata Steel Managing Director Heman Nerurkar told Reuters last month the company was mainly interested in securing coal supplies from Riversdale and was talking to Rio about a range of options.

Riversdale’s shares were put on a trading halt on Tuesday pending an announcement from Rio Tinto. The stock closed on Monday at A$16.10, indicating investors expected Rio Tinto to drop the 50 percent condition on its offer of A$16.50 a share.

UBS is advising Riversdale and Macquarie is advising Rio Tinto on the deal.

($1 = 0.976 Australian dollar)

(Additional reporting by Guillermo Parra-Bernal and Cesar Bianconi in Sao Paulo; editing by Dhara Ranasinghe, Vinu Pilakkott and Matthew Lewis)

Rio lowers threshold for Riversdale bid