Mining giant Rio Tinto has lowered its minimum acceptances target slightly in a last ditch effort to takeover South Africa’s Riversdale Mining. Rio’s offer of 16.50 Australian dollars ($16.42; £10.14) is now conditional on 47% of shareholders accepting it by 6 April. Previously its minimum target was 50%. The move came after talks on the A$3.9bn offer between Rio and Riversdale major shareholder, Brazil’s CSN. UBS advised Riversdale and Macquarie advised Rio Tinto.

Share acquisition

After failing to talk 20 per cent Riversdale shareholder CSN into selling enough shares to give Rio a controlling stake, Rio went unconditional on its bid late on Tuesday and cut from 50.1 per cent to 47 per cent the threshold it needs to reach to lift its offer from $16 a share to $16.50. The bid, which values all of Riversdale at almost US$4 billion, was therefore declared unconditional and the offer price set at 16.50 Australian dollars (US$16.9) a share provided Rio secures a more than 47% interest in Sydney-based Riversdale by April 6. Rio’s effective interest had risen to 41.04%, short of the more than 50% threshold previously set for the offer by a late Monday deadline.

History of the bid

Support for the bid has slowly gained traction in recent weeks but was always going to be a close call without either CSN or Tata selling some or all their shares to Rio. CSN in February edged up its stake in Riversdale and then Tata Steel early this month raised its stake 2.9 percentage points to 27.1%.

Analysts have speculated that CSN and Tata increased their stakes to ensure they can negotiate for supplies of coking coal, a key raw material in steel making. The two clashed in fact in early 2007 with the takeover of British steelmaker Corus Group PLC, bidding that was only settled by a nine-round sudden-death auction that pushed the price for winner Tata up by several billion dollars to US$12.2 billion.

Commercial rationale

A successful deal would mark Rio’s first major acquisition since its ill-timed US$38 billion takeover of Canadian aluminum producer Alcan Inc. at the height of the market in 2007 and would give it control of two major developing coking coal projects in an area of Mozambique attracting interest from mining and steel companies around the world. Riversdale’s two largest shareholders, steel producers steel producer Cia. Siderurgica Nacional of Brazil and Tata Steel Ltd. of India, together hold a deciding 47% stake but have remained quiet since the offer was first made in December.

Rio had been negotiating to buy Riversdale shares from CSN after failing to gain majority control by its deadline. According to Rio, the company’s experience developing large projects and its financial capacity are important in taking Riversdale’s assets “to the next stage of development.”

Riversdale operates a colliery in South Africa and is developing two projects in the Tete province of neighboring Mozambique, an area believed by some companies to be home to a massive deposit of high quality coal that may rival Australia’s Bowen Basin in Queensland. The company’s executives in January said that should Rio’s offer fail, Riversdale would need to turn to its shareholders, the bond market and other sources to raise more than US$3 billion needed to fund the projects.

Long tem plans

Rio in a statement said that if it secures less than a majority position in Riversdale, it won’t alter its plans for the company but may mean its ability to influence Riversdale’s decisions is limited and it may not be able to gain seats on Riversdale’s board as it intends. It previously said it plans to sell Riversdale’s South African coal operation, consolidate its head office with its own and seek the resignation of Riversdale’s directors