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BHP Billiton confident on Rio Tinto takeover

Marius Kloppers,
BHP Billiton
New York, USA — MININGREVIEW.COM — 10 September 2008 – BHP Billiton Limited – the world’s largest mining company – believes that falling commodity prices and a slowing global economy will convince investors to support its US$121.5 billion (R911.25 billion) hostile bid for the Rio Tinto Group.
“Shareholders are likely to favour the takeover because BHP has higher profit margins and lower debt than its rival,” said CEO Marius Kloppers in an interview here with Bloomberg News. “The expected cost savings of US$3.7 billion (R27.75 billion) are also more valuable as commodity prices decline,” he added.

Bloomberg reports that Kloppers wants BHP to become the world’s largest producer of copper and aluminium, and to overtake Brazil’s Cia Vale do Rio Doce as the biggest supplier of iron ore. He told the news agency he expected to complete the all-stock transaction by about Easter.

“If you look purely at completing the deal, the worse the economic cycle, the better for us,” he said. “What has changed now is that in the market people are understanding that our bid is a very good one. You will see us emphasise the value of our stock.”

Rio Tinto – itself the world’s third-largest mining company – rejected BHP’s sweetened offer of 3.4 BHP shares for each one of its own on 6 February 2008, saying the bid undervalued its assets and prospects. Melbourne-based Rio spokesman Ian Head could not be reached for comment.

Kloppers is borrowing a record US$55 billion (R412.5 billion) to pay for the deal, and said the company would buy back as much as US$30 billion (R225 billion) in stock.

“BHP plans to take its offer to Rio Tinto shareholders after obtaining regulatory approval, probably by year’s end,” said Kloppers. “BHP is betting Rio shareholders will accept the proposal because BHP has a 50% profit margin, compared with Rio’s 33%, and can better withstand a slowdown because Rio has more debt after its US$38.1 billion (R285.75 billion) acquisition of Alcan Inc. in 2007.