Mining for gold

The mining sector may not be the most glamorous in the world, by most people’s standards, but investment bankers presumably have a very different view. After a string of big deals in the sector, market leader BHP Billiton said on Thursday that it wants to buy rival Rio Tinto. This would be the second biggest takeover ever – which means lots of fat fees for bankers.

Last Updated: 31 Aug 2010

BHP said today that it had approached Rio Tinto over the weekend about a possible deal that would see it exchange three of its shares for each one of the latter’s. That would value the total transaction at well over $100bn – which would be huge at the best of times, let alone in the middle of a credit crunch.

However, Rio Tinto has no intention of submitting quietly. It swiftly rebuffed BHP’s advances and sent it off with a flea in its ear, claiming that the offer ‘significantly undervalued’ its business. But like a persistent nightclub lothario, BHP doesn’t seem to be disheartened. It said today that it was still seeking talks with the object of its affection about a possible compromise deal.

Combining these two Anglo-Australian mining giants would create an enormous company – its market value could be in the region of $350bn, which would dwarf anyone else in the sector. Normally, the only way to create a company that size is to list on the notoriously over-valued Chinese stock market.

Of course, the flip side of this is that the competition authorities may well turn their noses up at the idea. The two groups have such a big share of the world iron ore market that they’d probably be forced to sell some assets. BHP insisted it had done its homework and had nothing to worry about – which immediately led to speculation that it had lined up one of the other big mining companies for this very purpose.

Investors certainly seemed to welcome BHP’s interest – Rio Tinto’s shares shot up 25% today after the news emerged. So maybe it’s not just investment bankers who are desperate for this deal to happen.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

There's opportunity in this recession

A Schumpeterian view of closing businesses.

Is it okay to spy on my staff if I think they're slacking ...

Everything you wanted to know about employee surveillance but were afraid to ask.

The psychology of remote working

In depth: The lockdown has proven that we can make working from home work, but...

A simple cure for impostor syndrome

Opinion: It's time to stop hero-worshipping and start figuring out what greatness looks like to...

I was hired to fix Uber’s toxic culture - and I did. Here’s ...

Harvard’s Frances Frei reveals how you know when your values have gone rotten, and what...

Social responsibility may no longer be a choice

Editorial: Having securitised businesses’ loans and paid their wage bills, it’s not inconceivable the government...