1st Sep 2022 14:03
(Alliance News) - Rio Tinto PLC's new, higher price to take full control of Turquoise Hill Resources Ltd was below Berenberg's forecast, but looks "broadly fair" for both companies.
Rio Tinto on Thursday said it has struck a fresh deal to buy the rest of Turquoise Hill, owner of the Oyu Tolgoi copper-gold project in Mongolia, at an improved price of CAD43, around USD32.64, per share.
In August, Turquoise Hill had said it was no longer considering Rio Tinto's takeover offer of CAD34 per share, flagging that conditions in both equity and copper markets had "changed significantly" since the March offer.
Rio Tinto returned last week with an improved offer of CAD40 per share, which Turquoise Hill acknowledged. On Thursday, the two said they have reached agreement in principle on a CAD43-per-share deal, valuing the Turquoise Hill minority share capital at USD3.3 billion.
"The transaction is the result of extensive negotiations between the special committee of independent directors of Turquoise Hill and Rio Tinto that took place following the receipt on August 24, 2022 of an improved non-binding proposal from Rio Tinto of CAD40 per share. These discussions ultimately culminated in the CAD43 per share consideration offered pursuant to the transaction, which has the unanimous support of the special committee," Turquoise Hill explained.
This further increased offer represents a premium of 67% to Turquoise Hill's closing price of CAD25.68 on March 11. The stock closed at CAD36.12 in Toronto on Wednesday, giving the entire company a CAD7.27 billion, about USD5.52 billion, market capitalisation.
Berenberg had expected a final bid in the realm of CAD45 to CAD50, and said the agreement is a "sensible price, which balances the risk and reward of rolling up the asset."
Rio Tinto currently holds a 51% stake in Turquoise Hill. If the deal is successful - it needs approval from just under 67% of Turquoise Hill shareholders - Rio Tinto will have increased its stake in the Oyu Tolgoi project to 66%, with the government of Mongolia holding the remaining 34%.
"We are supporters of the deal, having written in depth on it, and think it makes sense from a strategic perspective, giving Rio the lowest-risk exposure to a meaningful equity increase in copper production (and access to all the cash flow). The key question is whether vocal minorities, such as Pentwater and SailingStone, will agree at this price," said Berenberg.
The new price looks "broadly fair" for both Rio Tinto and Turquoise, and so the deal should progress.
Turquoise shareholders are set to meet to vote on the transaction in the fourth quarter.
Shares in Rio Tinto were down 3.3% at 4,614.50 pence in London on Thursday.
By Lucy Heming; lucyheming@alliancenews.com
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