BHP undervalued Rio, Skinner

BHP Billiton's abandoned $102 billion takeover of Rio Tinto contained too many conditions and undervalued the company, Rio's chairman Paul Skinner said this morning at a press conference in Sydney.

BHP Billiton’s abandoned $102 billion takeover of Rio Tinto contained too many conditions and undervalued the company, Rio’s chairman Paul Skinner said this morning at a press conference in Sydney.

“What was on the table was something that fell short of our own assessment of the value of the company, the assets we have and the prospects for the future,” Skinner said.

“There was never an actual offer, given its preconditionality, that we were capable of accepting.”

According to Skinner, despite the deal falling through and the present state of the market Rio Tinto remains in a strong position for the future.

“We have a very strong stand alone company and a world class portfolio of assets, which even in tough markets are highly cash generative,” he said.

Given the present market climate, the collapse of BHP’s attempted takeover did not take Skinner and Rio completely by surprise.

“Clearly we were seeing a number of pressures building around the proposition BHP advanced,” he said.

“They’ve given a pretty full articulation of just how challenging the project was.

“I suppose we can’t be totally surprised that they decided in the end that it might have been a bridge too far.”

According to Skinner, with Rio shares falling as much as 40% in the wake of BHP pulling out of the takeover, the overall value of the company is what remains important to the board and shareholders.

“I have a very good view, as do my colleagues, of the underlying value of our business,” he said.

“We maintain a constant line of sight on the net present value of the business.

“We are guided much more by that than by day to day movements in the markets.”

Rio Tinto’s financial position remains strong and Skinner is confident the company will not have to issue equity to meet its $9 billion worth of debts that are due to be paid by October 2009.

“We are comfortable with our financial position,” he said.

The company’s debt position is manageable and various options are available, Skinner said.

“We have another of other ways of managing our debt position.”

According to Skinner, whatever the fallout from the abandoned deal or the downturn in the market, Rio Tinto is convinced its position in the industry is secure.

“Our confidence in the future of this industry and out ability to perform well across the cycle given the highly competitive asset base we have is quite unshaken,” he said.

“Notwithstanding the year we have had in managing the uncertainties related to the BHP Billiton bid, I think Rio Tinto today is very confident about its ability to deliver consistent value to shareholders as we go forward.”

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