When mergers get mooted, the stock-market reaction is generally predictable:
the stock of the target company rises, and the price of the would-be aquirer
falls. In the case of the latest proposed mining
mega-merger, the stocks followed most of the script: Rio Tinto soared 32%
on the news that it was being eyed as a takeover candidate by Australian giant
BHP Billiton. But interestingly, BHP
rose 3% itself. The market has spoken: a merger of these two companies is
a good idea.
Given that Rio’s share price is now all about merger arbitrage, expect some
kind of deal sooner or later, and treat its official
statement as little more than hardball negotiation. As Jason
Singer says,
BHP will need to pay up. How much is the question the two companies —
and the teams of advisers they will no doubt start assembling — will
be working through for weeks to come.
Of course, now that Rio Tinto is in play, other companies might decide to make
a rival bid. I suspect that Brazil’s CVRD might be interested, for starters.