Caixin
Jun 28, 2017 06:40 PM
M&A

Rio Tinto Extracts High Price From Yancoal as Chinese Miner Finally Lands Quarry

Yanzhou Coal Mining Co. Ltd. has apparently won a bidding war for Coal & Allied Industries Ltd., a Rio Tinto Group subsidiary in Australia. Above, a miner goes through a security check before descending into a mine in Yanzhou, Shandong province, in May 2007.  Photo: Visual China
Yanzhou Coal Mining Co. Ltd. has apparently won a bidding war for Coal & Allied Industries Ltd., a Rio Tinto Group subsidiary in Australia. Above, a miner goes through a security check before descending into a mine in Yanzhou, Shandong province, in May 2007. Photo: Visual China

A state-owned Chinese mining firm appears to have won a bidding war for a Rio Tinto subsidiary after the board of the British-Australian company reportedly opted for the Chinese buyer’s restructured, more-favorable second bid.

The bids from the Australian subsidiary of China’s Yanzhou Coal Mining Co. Ltd. and from Switzerland-based Glencore PLC had escalated recently, with both companies submitting revised acquisition bids and counterbids for Coal & Allied Industries Ltd. (C&A). C&A is a wholly owned subsidiary of Rio Tinto Group in Australia, the world’s top coal-exporting country.

Glencore failed to win the hearts of Rio Tinto’s board despite two bids with increasingly higher offers presented on June 9 and 23, but a proposal submitted on June 25 by Yancoal Australian Co. Ltd., the Yanzhou Coal Mining subsidiary, appealed to the board. Rio Tinto shareholder approval is also still required.

In a website post published on Monday, Rio Tinto’s board recommended that shareholders vote in favor of Yancoal, as its second bid offered a faster and more-reliable timetable for the deal, a higher net value, and a greater certainty of completion since all regulatory approvals had either been received or waived.

In the revised bid, Yancoal increased its cash payment to $2.45 billion from its previous bid’s $1.95 billion, with a newly guaranteed, unconditional royalty payment totaling $240 million added to the package. Yancoal’s parent company, state-owned Yankuang Group Co. Ltd., also raised its severance fee to $225 million from $100 million.

“We believe it is in the best interests of our shareholders to take the greater certainty of Yancoal’s strong proposal,” Rio Tinto CEO Jean-Sebastien Jacques said.

Compared with Yancoal’s second offer — worth a total of $2.69 billion — the second bid from Glencore comprised a $2.675 billion cash payment at completion, and seven payments of $25 million net of tax per month from September through the end of March.

Shareholders in Rio Tinto’s London- and New York-listed subsidiaries voted on the deal at a general meeting on Tuesday, but no result has been announced as yet. Shareholders at the group’s Australian-listed subsidiary are scheduled to hold a similar meeting on Thursday.

On Jan. 24, Yancoal agreed to acquire C&A in a $2.45 billion deal. Its proposal included $1.95 billion cash payment and $500 million in annual installments of $100 million following completion. But the deal was interrupted by Glencore, which submitted a $2.55 billion counterbid on June 9.

Rio Tinto is committed to developing long-term relationship with its Chinese partners, the company’s CEO said in a news release earlier this month.

In June 8, Rio Tinto signed an agreement with China’s State-Owned Assets Supervision and Administration Commission, a government agency that oversees state-owned companies, to develop executive training for enterprise leaders.

Contact reporter Song Shiqing (shiqingsong@caixin.com)

You've accessed an article available only to subscribers
VIEW OPTIONS
Share this article
Open WeChat and scan the QR code
GALLERY