Yahoo Finance Rio Tinto spurns Glencore offer for Australian coal mines in favour of Chinese bid
Rio Tinto has rejected a bid from FTSE 100 rival Glencore to buy its coal mines in Australia, opting to stick with its initial buyer, Chinese-backed Yancoal.
The Anglo-Australian group said that Yancoal was the preferred bidder because unlike Glencore it had already achieved regulatory clearances for the deal, meaning it could complete sooner.
Rio said it had received “additional information and confirmations” about how Yancoal would fund the acquisition, amid speculation that the company had yet to raise financing. Australia-listed Yancoal is majority owned by China’s Yanzhou, which is in turn owned by state-backed entities.
Yancoal has revised its payment terms so that it will now make one single payment for the Coal & Allied business in New South Wales instead of a number of deferred payments, Rio said. It also revealed it had financial backing from Yankuang Group, its parent company's biggest shareholder, although this has yet to be approved by Yancoal's independent directors.
A bidding war broke out over the coal mines earlier this month when Glencore revealed it had tabled a $2.55bn (£2bn) offer for the assets, $100m more than the initial bid by Yancoal, which was announced in January.
Rio is backing out of coal mining to focus on iron ore and steel while China is looking to shore up its energy supply. Although the country is trying to cut back pollution from coal-fired plants, the commodity is expected to remain in long-term demand across Asia for the next two decades - prompting Glencore’s interest in gatecrashing the deal.
In its offer earlier this month, Switzerland-based Glencore pointed out it already had mines adjacent to Rio’s operations in the Hunter Valley, offering potential savings if the two businesses were combined. It also has regulatory approval from Japan, which imports the bulk of the area’s coal.
But Mr Jacques said Yancoal’s offer was “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”.
Because Rio Tinto is 10pc owned by Chinalco, which is also backed by the Chinese government, the sale will count as a related party transaction. As such the deal must go before a vote by Rio Tinto shareholders in the UK and Australia next week.
A Glencore spokesman said the company would review Rio’s response.
Tyler Broda, an analyst at RBC, said: “The Rio Tinto board’s decision to go with the Yancoal bid for Coal & Allied could now see Glencore sharpen its pencils to see whether it can find a way to make a superior bid.”
Meanwhile Rio's hunt for a new chairman to replace the outgoing Jan Du Plessis suffered a blow today after the board member leading the search, John Varley, announced his resignation. The former Barclays boss has been charged with conspiracy to commit fraud by the Serious Fraud Office relating to the British bank's capital raise in 2008.
