RIO TINTO has snubbed an offer from Glencore for its thermal coal assets in Australia, sticking instead with a lower offer of US$2.45bn from Chinese firm Yancoal.
On 9 June, Glencore bid US$2.55bn for Rio Tinto’s subsidiary Coal & Allied, trumping the Yancoal offer made in January. Despite the higher offer, the Rio Tinto board recommended yesterday that shareholders vote to approve the sale of its coal mines in the Hunter Valley region of New South Wales to Yancoal.
The board explained that having assessed both proposals the Yancoal deal would pay out quicker and faces less regulatory uncertainty. In its original bid, Yancoal had agreed to pay US$1.95bn upfront, with five following payments each year of US$100m. When Glencore offered the same structure but with an upfront payment of US$2.05bn, Yancoal countered, offering to make the full payment on completion.
The board also noted that Glencore has not secured regulatory clearance in Australia, China, Korea or Taiwan, adding that there is uncertainty that they can be gained in “a timely manner”.
“Yancoal’s revised offer is the most attractive because it removes the deferred payment structure, can meet the timeline we have set for the transaction, and has given us certainty regarding the outstanding regulatory approvals required,” said Rio Tinto CEO Jean-Sébastien Jacques.
In 2014, Glencore failed in an approach to merge its coal assets with those of Rio Tinto. Industry sources said they expect Glencore to “press its case” to buy Rio’s mines, which are next to assets it already owns, The Sydney Morning Herald reports.
The Financial Times reports that some analysts were not surprised by Rio’s decision to go for the lower offer, explaining that the company is wary of upsetting China – its biggest customer – and that Jacques has been courting Chinese companies and making agreements with Chinese authorities.
Rio Tinto shareholder meetings are arranged for 27 and 29 June to vote on the deal. The company expects to complete the deal in Q3.
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