BHP may re-enter Rio talks

BHP Billiton could re-enter acquisition talks with Rio Tinto as key investors prompt the company to explore potential deals, according to a newspaper report.

BHP Billiton could re-enter acquisition talks with Rio Tinto as key investors prompt the company to explore potential deals, according to a newspaper report.

BHP Billiton has been given the ‘green light’ to explore potential deals following a series of meetings with institutional investors over the past two weeks, according to The Sunday Telegraph.

BHP chief executive, Marius Kloppers, has said the company could “jump on potential opportunities” and has raised $9 billion through bond markets in recent weeks, re-igniting rumours it is positioning itself for an acquisition.

Liberum Capital analyst, Michael Rawlinson, told clients on Friday that it “makes sense” for BHP to have another look at Rio Tinto, and says shareholders are supporting renewed bid talks.

BHP dropped its hostile takeover bid for Rio in November 2008, citing ongoing economic uncertainty. Rio has since struck a $28 billion deal with Chinalco to deal with debt issues.

Rawlinson says the attitude of ‘average BHP shareholders’ about the merits and pricing of a bid has changed over the past six months.

“We have gone from, ‘No way, except for an extreme price’ to ‘Put something reasonable on the table and get on with it’,” he said.

BHP believes there is limited room to move unless the Chinalco deal is rejected by the Foreign Investment Review Board or Rio shareholders.

While the company claims a merger with Rio is “attractive”, the miner says hurdles have ‘increased’ since it dropped the deal last year.

Rawlinson says the Chinalco deal represents a “competitive threat” to BHP by providing Rio with access to cheap debt from Chinese banks and favaourable access to Chinese offtake contracts.

Australia’s Foreign Investment Review Board has until June 18 to make a ruling on the deal.

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