Rio Tinto surges to record amid talk of further bid activity

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Shares in the mining giant Rio Tinto soared to a record close as the markets anticipated further bid activity in the wake of its rejection of BHP Billiton's $142bn (£67.9bn) approach.

London-based Rio was the strongest riser on the FTSE 100, strengthening 6.2 per cent to 5,624p on speculation of a higher offer from BHP, or even the emergence of a potential counter-bidder.

Martin Potts, mining analyst at Landsbanki, said BHP will have to come in with a higher offer, while one sector banker said the market was waiting to see if a "white knight" would emerge. "It is unlikely that one single company could come in for Rio by itself, but several could team up to bid," he said.

Mr Potts said Rio was unlikely to be targeted by its Western rivals, but that the Chinese could see an opportunity to cherry-pick some of the group's assets, especially in iron ore, or even launch a full takeover.

Thursday's bid increased speculation of further deals in the sector. Mr Potts said: "There has been consolidation in the mining sector for years and that will only increase following BHP's move on Rio."

Yesterday, the rumour mill was in full flow, as reports linked Anglo American with potential interest in a merger with Xstrata. Elsewhere, a newspaper in Australia said that Glencore International was in talks with Xstrata, in which it holds a 35 per cent stake, over combining their mining interests. One mining source said that the obvious next deal would be a tie-up between Brazil's Companhia Vale do Rio Doce and Anglo American.

BHP, the largest mining group in the world, revealed on Thursday it had approached Rio, the third-largest miner, over a potential all share merger worth about $142bn. The announcement was made the day after Rio completed its takeover of Canada's Alcan, the largest completed mining deal, for $42bn.

Rio promptly rejected the approach, with sources close to the company saying that the 20 per cent premium on the bid was far too low. By the close of play last night, Rio was worth $154bn, 8.5 per cent higher than BHP's bid.

BHP noted its willingness to return to the table in its statement. It said it was pushing for "an opportunity to meet and discuss its proposal with Rio Tinto". A spokesman for BHP said there was no timetable for talks as yet.

Landsbanki's Mr Potts said the approach was "clearly not enough". He added there would be significant regulatory issues surrounding the merger, probably leading to the sale of one of the group's iron ore businesses, should the deal complete. He added: "We think that the BHP approach is serious, and so it will attempt to complete the acquisition unless the price becomes unrealistic or the anti-trust objections are too onerous."

An increased offer could become the largest takeover bid on record. Thursday's offer was already higher than the second largest deal, America Online's takeover of Time Warner for $112bn in 2000. There was talk on Thursday that Rio could fetch up to $200bn, which would smash the previous record deal – Vodafone's takeover of Mannesmann for $172.1bn in 2000.