BHP ups takeover bid for Rio Tinto to $147bn

BHP Billiton increased its bid for Rio Tinto last night but failed to offer more than what Chinalco, China's state-owned aluminum giant, paid in a dramatic share swoop on the company last week.

Marius Kloppers, head of BHP, yesterday formalised what would be one of the world's largest ever takeovers by offering 3.4 BHP shares for each Rio share, or about $147bn (£75bn) – up from the three-to-one ratio that it first offered for its smaller rival in November. The bid is conditional on receiving approval from 50 per cent plus one of Rio's investors.

Mr Kloppers said that the fate of his bid to forge the world's first mining super-major was now in the hands of Rio's shareholders after he was repeatedly spurned by the Rio board.

"The way we look at it, we were proactive in unlocking value for Rio shareholders, and they will now be asking why the Rio board is not allowing them to realise this substantial uplift."

Rio noted the offer, but chairman Paul Skinner urged shareholders to "take no action".

The offer fell short, however, of the £60 per share that Chinalco and its American partner Alcoa paid in a share raid last week that gave it 9 per cent of Rio's listed shares.

The difference will fuel speculation that Chinalco, which has the backing of China Development Bank, one of the nation's most aggressive financiers of major capital projects, could up the stakes by launching a richer counterbid, or at the very least that it will agitate for a higher offer price.

Mr Kloppers argued that it was incorrect to compare the headline prices of a swoop for a minority stake and a formal takeover bid. He said: "An offer in which investors exit the cycle and do not share in the upside of the [commodities] cycle, and that is done in an overnight raid for a piece of the company, does not constitute the same thing [as a full bid]."

The formal bid came amid rising political tensions surrounding the bid situation. The Australian prime minister, Kevin Rudd, said yesterday that the Treasury would review Chinalco's investment on the grounds of "national interest."

In a press conference in Canberra, he said: "The reason we have Foreign Investment Review Board guidelines and a foreign takeovers act is to ensure that Australia's national interest is always met ... Those national guidelines are there, they will be applied by the treasurer in relation to Chinalco."

As the largest consumer of a variety of commodities that a combined BHP-Rio would dominate, China has a clear interest in seeing the deal fail.

Chinalco had already pledged to make a voluntary submission to Australia's foreign investment review board, and president Xiao Yaqing has said repeatedly he has no intention of raising his stake. However, few observers think that the company has made its final move.

Tom Albanese, the chief executive of Rio, has steadfastly refused to talk with Mr Kloppers, about a deal that he had repeatedly dismissed as "two ballparks away."

Most analysts had predicted that BHP would have to offer a ratio of at least 3.5 to one plus a cash sweetener in the £6-to-£7.50-per share region.

Mr Kloppers said yesterday, however, that he believed the improved offer was "compelling" and pointed out that it represented a 45 per cent premium to Rio's share price before news of the bid broke in November.

The move, announced after the markets in the UK and America had closed and before the opening of the market in Australia, came just hours before a "put-up or shut-up" deadline imposed by the UK Takeover Panel was set to expire.