Rio Tinto Won’t be Independent for Long

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.

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