Reader Mail: What’s going on with BHP & RIO?
Australian investors are trying to sort out what's going on between BHP and RIO.
Time to look at some reader mail.
"In reading all the articles about the BHP bid for Rio Tinto, I keep wondering why no one cites Kloppers' disastrous strategy?
"While he was attempting to clever and 'coy,' and underbidding on Rio Tinto, he allowed time for the Chinese to come in and frustrate the effort. He was playing chess while he should have gone for a decisive smash play - much like Albanese did for Alcan.
In fact, I think the Rio Tinto CEO has played a far smarter game so far and if the merger goes through, I would select him as the surviving executive though I doubt that would happen."
It's a full mail bag today.
Daily Reckoning,
You suggest investors are at property auctions in today's newsletter. Why would you bid at a property auction when good value customer and profit growth shares are to be had? I keep an eye on residential property, and the yields are the lowest I have ever seen. Renters don't look as though they will be able to pay more in the next few years to me. Property is a strange beast. I wonder what the trend in average time between listing and sale has been for the last couple of years in the investment segment of the market.
Now for some simple questions. Can you please explain how RIO will benefit RIO's shareholders by continuing to drive the price of both BHP and the lockstepped RIO shares down?
Can you speculate on what BHP/RIO shares would be worth now if RIO had accepted the first scrip for scrip offer, when the scrip price ratio pre offer was actually as good as or better than the latest offer?
Please explain how the RIO directors' strategy to date benefited RIO's general shareholders? Some of RIO's major investors took the money, and ran. They did OK, but some observers perceive that the new player has the ability to block a fully beneficial clean merger, and has a natural interest in keeping prices from (both) BHP AND RIO low as well.
Since the Chinese have got their blocking stake, and potentially a seat or two on RIO's board, what will RIO shares be worth the morning after the night before if BHP withdraws its offer? Doesn't the likelihood of an FIRB barrier make BHP the only takeover game in town?
And here is a complicated question. What will Twiggy in the middle Fortescue be worth when (and if) BHP and RIO are combined.
Are we having fun yet?
Regards,
Brian
Yes. We are having fun. While the big boys duke it out, we believe the lower-grade ores in the mid-West become more economically viable day-by-day. There are more than two big stocks to pick from as well.
Hi Guys.
Love the daily read. Simple question really. Does Gold Bullion have a Silver counterpart, and if so, is it worth an investment given Silver is doing so well?
Kind Regards,
Ken H.
iShares manages a silver ETF in the States that trades under the ticker symbol (NYSE: SLV). In the last month, SLV has slightly outperformed the gold ETF (NYSE:GLD).
Dan Denning
The Daily Reckoning Australia
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). Dan draws on his network of global contacts from his base in Melbourne. He’s the managing editor of resource newsletter Diggers and Drillers and the editor of The Daily Reckoning Australia.
Comment by Stewart Corlett on 11 February 2008:
The first letter regarding BHP's "disastrous strategy" has been spammed to at least two readers' comments sections in BHP/Rio related articles in The Times. I would guess that the writer (Cheri of LA) is a relative of Tom Albanese and/or holds a lot of Rio shares.
Yeah right, the decisive "smash play" - say an offer of 4 for 1 and a cash sweetener of USD16 per share. In these uncertain times any offer that the Rio board would have considered would have been far, far too much.
Comment by Catherine A Yeung on 14 February 2008:
Stewart Corlett is definitely correct about a deliberate attempt to undermine BHP Billiton's management through the mass media. Even the Sydney Morning Herald published a report on 9 Feb condemning BHP for being greedy in its price bargaining with the Chinese buyers. This SMH report has been widely circulated in the Chinese blogosphere via a news aggregator called China Digital Times.
As I've pointed out earlier at China Digital Times, the truth is, Rio Tinto has been gradually selling off its iron ore asset to China since 2004. Rio's action makes it really difficult for BHP to conduct any sensible price bargaining with the Chinese buyers. So BHP's takeover bid should be interpreted as a pre-emptive move against an increasingly hostile operating environment.