China’s coal giant awaits Rio response to Glencore’s offer

Bloomberg

China’s Yanzhou Coal Mining Co. is holding fire on a counter offer for Rio Tinto Group’s Australian coal assets as it waits to hear whether Glencore Plc has succeeded in trumping the deal it struck six months ago.
Glencore Chief Executive Officer Ivan Glasenberg has submitted a proposal to buy Rio’s Coal & Allied unit in New South Wales for at least $2.55 billion, the Baar, Switzerland-based producer and trader said in a statement. Yanzhou’s Yancoal Australia unit in January offered $2.45 billion for the business, including an initial $1.95 billion cash payment and $500 million in annual installments of $100 million following completion.
“If Rio Tinto determines that the Glencore proposal is a superior proposal, Yancoal will have a right to match or better that proposal,” Yanzhou said in a Hong Kong exchange filing. A further announcement will be made by the company “if it receives notification from Rio Tinto in relation to whether the Glencore proposal constitutes a superior proposal,” it said.
Rio’s board and management will give the Glencore proposal “appropriate consideration and respond in due course,” the company said in a statement. A Rio spokesman on Monday declined to comment further.
Yanzhou has received outbound investment approval from China’s National Development and Reform Commission and the Ministry of Commerce as well as merger clearance from the nation’s Anti-Monopoly Bureau, it said. The company expects to receive any outstanding approvals by the end of June, according to the statement.
“The Glencore decision puts Rio Tinto in a very difficult situation,” said Helen Lau, a Hong Kong-based analyst with Argonaut Securities (Asia) Ltd. “It’s hard for the board to reject a higher offer, with better terms, but at the same time, it could be even more difficult to reject Yanzhou Coal, which has got almost all government clearance for the deal.”
If Glencore’s bid succeeds, it would also seek to buy Mitsubishi Corp.’s stakes in two coal ventures in the same area for $920 million. Glencore would sell at least $1.5 billion in assets to mitigate the cost, it said in statement.

HUNTER VALLEY
The Rio coal operations are adjacent to existing Glencore mines in Australia’s Hunter Valley, and would take Glencore’s production capacity there to 81 million metric tons a year. In 2014, Glencore
and Rio considered merging their coal businesses.
“Yancoal has to wait and watch, but also has to carefully calculate whether a higher bid could justify the purchase to its own shareholders,” Lau said. “A good asset at the current price may not be a good one with another 10 percent premium. They have to make sure state investment is spent carefully and soundly on high-quality assets.”
Glencore’s bid for the coal assets comes just weeks after it expressed interest in a combination with grain trader Bunge Ltd. as Glasenberg steps up expansion efforts following a painful commodities downturn in which it was forced to sell assets and cut costs.
The trader has already returned to deal making. In December, it teamed up with shareholder Qatar Investment Authority to buy almost 20 percent of Russian oil producer Rosneft PJSC. Glencore also agreed to a $960 million Congo mining deal in February.
There is no certainty that any transaction will be concluded, Glencore said, adding that the deal would be funded from existing cash and committed facilities. Glencore will only be bound once a binding share purchase agreement is concluded with Rio Tinto. The proposal expires if a binding purchase agreement hasn’t been executed by June 26. Peter Grauer, the chairman of Bloomberg LP, is a senior independent non-executive director at Glencore.