12th Nov 2007 07:00
BHP Billiton PLC12 November 2007 12 November 2007 Number 33/07 BHP BILLITON'S PROPOSED COMBINATION WITH RIO TINTO TO UNLOCK VALUE HIGHLIGHTS(1) • Combination to create the world's premier diversified natural resources company • Unique portfolio of large-scale, low-cost, long-life assets • US$3.7 billion per annum in quantified synergies achieved through efficiencies and acceleration of volumes to meet strong customer demand • Three BHP Billiton shares for each Rio Tinto share equivalent to a premium of approximately 28 per cent for Rio Tinto shareholders • All share proposal gives Rio Tinto shareholders exposure to the world's premier diversified natural resources company • Value enhancing for BHP Billiton shareholders with exposure to synergies captured, strengthened asset portfolio and unrivalled future growth pipeline • US$30 billion post-completion buy-back intended • Cash flow and earnings per share accretive from the first full fiscal year following completion 1 Introduction The Board of BHP Billiton has recently written to the Board of Rio Tintoproposing a combination of their respective companies to create an organisationwithout peer in the natural resources industry. The Board of BHP Billiton hassought and continues to seek to engage in discussions with Rio Tinto with a viewto obtaining the support and recommendation of the Board of Rio Tinto for thisproposal. To date Rio Tinto has not agreed to these discussions. BHP Billiton now considers it appropriate to make BHP Billiton and Rio Tintoshareholders aware of this proposal so that it can seek their support fordiscussions between the two companies. This announcement is intended to provideinformation about BHP Billiton's proposal and does not constitute an offer andthere can be no assurance that any combination or offer will result. It is proposed that the combination of BHP Billiton and Rio Tinto be completedby two inter-conditional schemes of arrangement with each Rio Tinto shareholderreceiving three BHP Billiton shares for each Rio Tinto share held. This share exchange ratio implies a premium of approximately 28 per cent to thecombined volume weighted average market capitalisations of Rio Tinto Limited andRio Tinto plc over the month ended 31 October 2007 (being the last date prior toBHP Billiton's approach to Rio Tinto), based on volume weighted average BHPBilliton share prices over the same period. Importantly, with the all share proposal, Rio Tinto shareholders receive notonly the premium, but also pro rata access to the current and future economicbenefits of the combination, including a pro rata share of synergies. This combination is value enhancing for BHP Billiton shareholders, who also gainfrom a pro rata share of synergies, strengthened asset portfolio and unrivalledfuture growth pipeline. 2 Unlocking Value BHP Billiton firmly believes that the rationale for combining BHP Billiton andRio Tinto is compelling due to the strategic fit, the expected synergies and theopportunity to create an organisation without parallel. This combination willunlock unique value for both BHP Billiton and Rio Tinto shareholders. A. Strategic Fit BHP Billiton considers the combination of BHP Billiton and Rio Tinto as the mostlogical and compelling consolidation opportunity for both companies. The fit interms of values, strategy, asset mix and quality, as well as culture, is withoutcomparison in the natural resources industry. The two companies each have portfolios of large-scale, low-cost, long-lifeassets that are highly complementary and, when combined, would be without peer.Importantly, the proposal offers material benefits unique to this combinationbecause of the common and overlapping presence in a number of major resourcebasins and joint ownership interests. • The overlaps offer unique opportunities for material value creationfrom realising further economies of scale, sharing infrastructure and removingduplication. The unique value arises from combining the operations in a numberof major resource basins, especially: o faster and more efficient development of the combined iron oreresources in Western Australia; o optimisation of the Australian coal operations in the Hunter Valleyand the Bowen Basin; and o improved and expanded development of brownfield and greenfieldopportunities within the combined Aluminium, Base Metals, Diamonds andIndustrial Minerals businesses. • By combining the two development portfolios, optimising thedevelopment sequence and utilising the combined infrastructure, the developmentof new production can be substantially brought forward, and the long-term valueand utilisation of the resources can be optimised. • Looking beyond the current development portfolios, both companies areseeking to develop resources in new geographies that frequently have highinfrastructure and other costs, as well as increased risks. Combined, BHPBilliton and Rio Tinto would have greater ability and increased opportunities todevelop the next generation of world-scale projects in these new regions, forthe benefit of customers, local communities and shareholders. B. Quantified Synergies This combination is expected to generate material synergies - the total beingunique to a combination of BHP Billiton and Rio Tinto due to the substantialoverlap in neighbouring and jointly-owned operations, combined with the usualareas of duplication. In particular, BHP Billiton expects: • US$1.7 billion nominal per annum of cost savings in the third fullyear following completion, achieved through removal of duplication as well asprocurement and operating efficiency savings; and • further EBITDA enhancement of US$2.0 billion nominal per annum in theseventh full year following completion, driven primarily by the acceleration ofvolumes to customers. In the seventh full year following completion this, therefore, gives a totalincremental EBITDA of US$3.7 billion nominal per annum of quantified synergies. The total one-off implementation cash costs related to achieving these synergiesare expected to amount to US$0.65 billion over the first two full yearsfollowing completion. This estimate of cost savings and further EBITDA enhancement has been reportedon under the City Code on Takeovers and Mergers by KPMG and by BHP Billiton'sfinancial advisor Goldman Sachs International. Copies of their letters areincluded in parts (a) and (b) respectively of Appendix II. The estimate of cost savings and further EBITDA enhancement should be read inconjunction with notes (s) to (w) of Appendix I. C. Unparalleled Organisation BHP Billiton and Rio Tinto have aligned values and similar management processes.Both companies share core values focussed on global best practice in safety,community and environment. Created from this combination is a deep pool of talent, scarce in the currentstrong resources market, and BHP Billiton anticipates that key managementpositions would be filled by drawing on the best of both management teams. In addition, BHP Billiton would invite a number of Rio Tinto's independentdirectors to join the combined Board. 3 A Deliverable Proposal BHP Billiton has spent considerable time formulating its proposal to Rio Tintoand is highly confident that it can be successfully completed. A. Manageable Regulatory Issues BHP Billiton has undertaken a thorough analysis of the anti-trust implicationsof this combination and is confident that anti-trust issues present nosignificant barriers to completing the proposed transaction, and that anypossible regulatory concerns can be readily addressed. BHP Billiton considersthat this process should not impact in a meaningful way either the futureprospects of the combined group or the amount and achievability of synergies. Importantly, the expanded growth options and speed-to-market benefits availableto the combined group would provide material pro-competitive benefits in keycommodity markets, to the advantage of customers. BHP Billiton expects the regulatory focus to centre on the combined iron orebusinesses, where the combined group would have a share of contestable iron oresales of approximately 27 per cent.(2) In the supply of iron ore, prices areset by supply and demand and the cost of marginal production. The combinedgroup's assets would be low cost in comparison to the marginal producer, meaningthe combined group would have an incentive to invest in those assets and to growproduction. In addition, BHP Billiton expects emerging and new low-costproducers will increase competition in what is a rapidly evolving marketplace. BHP Billiton expects that obtaining the regulatory approvals will take between 9and 12 months, allowing for a detailed review by the regulators. B. Clear Benefits for Customers This proposal will enable the combined group to better serve the needs ofcustomers. Together, BHP Billiton and Rio Tinto will be able to deliverincreased product volumes to market more quickly, against a backdrop of growingdemand. Supply logistics can be optimised by way of blending or improveddelivery options resulting in greater security of supply to customers. Thecombination will create a unique portfolio of low-cost, world-class assets whichwill enable product to be delivered to customers throughout global economiccycles. C. Preserves Dual Listed Companies (DLC) Structure In order to deliver the value of the combination to all shareholders, BHPBilliton has proposed that the transaction be structured as an all shareexchange at a fixed ratio, preserving the DLC structure and each listingdomicile for Rio Tinto shareholders. Only a combination of BHP Billiton and Rio Tinto could readily accommodate bothparts of Rio Tinto's DLC structure. D. Shareholder and Other Approvals BHP Billiton continues to seek the support and recommendation of the Board ofRio Tinto for its proposal, which would be subject to receipt of all appropriaterequired anti-trust and regulatory approvals. BHP Billiton has proposed thatthe combination of BHP Billiton and Rio Tinto be completed by twointer-conditional schemes of arrangement, the implementation of which wouldrequire approvals of both BHP Billiton and Rio Tinto shareholders and courtapprovals. 4 Value Proposition for All Shareholders A. Compelling Premium and Ongoing Participation for Rio TintoShareholders On a pro forma basis, Rio Tinto shareholders would own approximately 41 per centof the combined group (excluding intra-company cross-holdings). BHP Billiton has proposed that the terms for the combination would involve eachRio Tinto shareholder receiving three BHP Billiton shares for each Rio Tintoshare. More specifically, the proposed consideration would be structured as: • three BHP Billiton Limited shares for each Rio Tinto Limited share;and • three BHP Billiton shares for each Rio Tinto plc share consisting of 80per cent BHP Billiton Plc shares and 20 per cent BHP Billiton Limited shares.The consideration for Rio Tinto plc shareholders would be structured on a mixand match basis. Based on the closing prices of a BHP Billiton Limited Ordinary Share of A$46.10and a BHP Billiton Plc Ordinary Share of £18.31 on 31 October 2007 (being thelast date prior to BHP Billiton's approach to Rio Tinto), the proposal values: • each Rio Tinto Limited Ordinary Share at A$138.30 and the issuedordinary share capital of Rio Tinto Limited at A$39.5 billion; and • each Rio Tinto plc Ordinary Share at £56.28 and the issued ordinaryshare capital of Rio Tinto plc at £56.1 billion. Based on the closing prices of BHP Billiton Limited and BHP Billiton Plc shareson 31 October 2007, the total consideration offered to shareholders of Rio TintoLimited and Rio Tinto plc is US$153.2 billion. This implies a premium ofapproximately: • 25 per cent to the combined market capitalisations of Rio TintoLimited and Rio Tinto plc on 31 October 2007 of US$122.1 billion; and • 30 per cent to the combined volume weighted average marketcapitalisations of Rio Tinto Limited and Rio Tinto plc over the month ended 31October 2007 of US$118.2 billion Based on the volume weighted average prices of BHP Billiton Limited and BHPBilliton Plc shares for the month ended 31 October 2007, the total considerationto shareholders of Rio Tinto Limited and Rio Tinto plc is US$151.2 billion.This implies a premium of approximately • 28 per cent to the combined volume weighted average marketcapitalisations of Rio Tinto Limited and Rio Tinto plc over the same period. Based on BHP Billiton's closing share prices on 9 November 2007, the totalconsideration offered to shareholders of Rio Tinto Limited and Rio Tinto plc isUS$138.1 billion, which represents a premium of approximately 15 per cent to thecombined market capitalisations of Rio Tinto Limited and Rio Tinto plc on 8November 2007 and 7 November 2007, respectively, being market capitalisationsreflecting closing prices of Rio Tinto Limited and Rio Tinto plc sharesimmediately prior to BHP Billiton's announcement on 8 November 2007 in responseto speculation about a potential offer for Rio Tinto at a premium. The issue of BHP Billiton Limited shares as a portion of the consideration toRio Tinto plc shareholders will rebalance the DLC legs to approximately equalsize. Rio Tinto shareholders resident in Australia and the United Kingdom will be ableto benefit from capital gains tax rollover relief, other than possibly inrespect of BHP Billiton Limited shares that are received by Rio Tinto plcshareholders. B. Continued Participation by Both Sets of Shareholders Importantly, the proposal does not require any Rio Tinto shareholder to exit; itdelivers to Rio Tinto shareholders not only the premium, but also pro rataaccess to the current and future economic benefits of the combination, includinga pro rata share of synergies. The combination of BHP Billiton and Rio Tinto is value enhancing for BHPBilliton shareholders. In creating the world's premier diversified naturalresources company, BHP Billiton shareholders will benefit from a pro rataexposure to the substantial synergies to be captured and a strengthened assetportfolio and future growth pipeline. BHP Billiton expects the combination to be cash flow per share(3) and earningsper share(4) accretive to BHP Billiton shareholders from the first full fiscalyear following completion. C. Financial Strength Importantly, the combined group would be uniquely positioned to meet the strongdemand that both companies are presently enjoying from China, India and otherhigh growth economies, which is expected to continue. The combination of BHP Billiton's and Rio Tinto's high-quality, low-cost,long-life assets, with enhanced commodity and geographic diversification, andadditional value enhancement through merger synergies, would enable the combinedgroup to deliver strong long-term performance throughout commodity cycles. The combined group would have superior cash flows; BHP Billiton's intention isfor the combined group to target a single A credit rating. BHP Billitonestimates that the combined group would have the financial flexibility to returnsignificant capital to its shareholders, and intends to make the first suchreturn following completion through an initial share buy-back (or otherappropriate mechanism) of approximately US$30 billion. This cash distributionwould allow the combined group to have an efficient balance sheet whilemaintaining flexibility for future investment. BHP Billiton believes that Rio Tinto has in place financing arrangements ofUS$40 billion to fund the acquisition of Alcan Inc, which include a change ofcontrol clause. BHP Billiton intends to maintain a progressive dividend policy. 5 Information on BHP Billiton BHP Billiton is headquartered in Melbourne, Australia, and is the world'slargest global diversified natural resources company. BHP Billiton is listed onstock exchanges in Australia (ASX), United Kingdom (LSE), United States (NYSE),South Africa (JSE), Germany (Frankfurt) and Switzerland (Zurich). As at Friday,9 November, 2007, BHP Billiton had a market capitalisation of US$206.7 billion. BHP Billiton has approximately 39,000 employees working in more than 100operations in approximately 25 countries. For the financial year ended 30 June2007, BHP Billiton reported revenue, together with its share of jointlycontrolled entities' revenue, of US$47.5 billion, underlying earnings beforeinterest and tax (underlying EBIT) of US$20.1 billion, net profit attributableto shareholders of US$13.4 billion and net operating cash flow of US$15.6billion. As at 30 June 2007, BHP Billiton had net assets of US$29.9 billion. BHP Billiton operates ten business units or Customer Sector Groups (CSGs),aligned with the commodities which the company extracts and markets. The tenCSGs are Aluminium, Base Metals, Diamonds and Specialty Products, Energy Coal,Iron Ore, Manganese, Metallurgical Coal, Petroleum, Stainless Steel Materialsand Uranium. • The Aluminium CSG's (12 per cent of total BHP Billiton FY2007 revenue)principal activities are the mining of bauxite, refining of bauxite into aluminaand smelting of alumina into aluminium metal. The CSG has operations inAustralia, Brazil, Mozambique, South Africa, and Suriname. • The Base Metals CSG's (27 per cent of total BHP Billiton FY2007revenue) principal activities are the mining of copper, silver, lead, zinc,molybdenum, uranium and gold. A separate Uranium CSG was created in July 2007.Its principal activities are the production and marketing of uranium and theoperation and development of the Olympic Dam ore body. The Uranium CSG'sresults will be reported as part of the consolidated Base Metals CSG's results.The Base Metals CSG has operations in Australia, Chile, Peru and the UnitedStates. • The Diamonds and Specialty Products CSG's (two per cent of total BHPBilliton FY2007 revenue) principal activities are the mining of diamonds andtitanium minerals. The CSG has operations in Canada and South Africa. • The Energy Coal CSG's (10 per cent of total BHP Billiton FY2007revenue) principal activities are the mining and marketing of export thermal(energy) coal. The CSG has operations in Australia, Colombia, South Africa andthe United States. • The Iron Ore CSG's (12 per cent of total BHP Billiton FY2007 revenue)principal activities are the mining of iron ore from a number of mines. TheCSG's principal operations are based in the Pilbara region of north WesternAustralia and in Brazil. • The Manganese CSG's (three per cent of total BHP Billiton FY2007revenue) principal activities are the mining of manganese ore and production ofmanganese metal and alloys. The CSG has operations in Australia and SouthAfrica. • The Metallurgical Coal CSG's (eight per cent of total BHP BillitonFY2007 revenue) principal activities are the mining of metallurgical coal inAustralia. • The Petroleum CSG's (12 per cent of total BHP Billiton FY2007 revenue)principal activities are oil and gas exploration, production, development andmarketing in Australia, the United Kingdom, the United States, Algeria, Trinidadand Tobago, and Pakistan. • The Stainless Steel Materials CSG's (15 per cent of total BHP BillitonFY2007 revenue) principal activities are producing nickel concentrate primarilyfor the stainless steel industry. The CSG operates a number of mines,concentrators, smelters and refineries in Australia and Colombia. 6 Information on Rio Tinto Rio Tinto is headquartered in London, United Kingdom and is listed on theAustralian, London and New York stock exchanges. As at Friday, 9 November,2007, Rio Tinto had a market capitalisation of US$151.7 billion. Rio Tinto has operations worldwide with strong representation in Australia andNorth America and significant businesses in South America, Asia, Europe andsouthern Africa. Through its global operations, Rio Tinto produces iron ore,metallurgical and thermal coal, copper, bauxite, alumina, aluminium, uranium anddiamonds as well as other base metals and industrial minerals. Rio Tinto has recently expanded its aluminium operations with the acquisition ofa majority interest in Alcan, creating the world's leading supplier ofaluminium. 7 Management and Employees The existing employment rights, including pension rights, of all management andemployees of Rio Tinto will be fully safeguarded. 8 Regulation The proposal would be subject to satisfaction or waiver of RegulatoryPre-conditions, relating to the obtaining of regulatory clearances from theEuropean Union, Australia, the United States, Canada and South Africa. This announcement does not constitute a firm intention to make an offer and,accordingly, there can be no assurance that any offer will be made, even ifthese Regulatory Pre-conditions are satisfied or waived. 9 General In accordance with Rule 2.10 of the UK City Code, as at Friday, 9 November 2007,2,256,993,546 BHP Billiton Plc Ordinary Shares (including 20,072,510 BHPBilliton Ordinary Shares held by BHP Billiton Limited) and 3,358,359,496 BHPBilliton Limited Ordinary Shares were in issue. The International SecuritiesIdentification Number for BHP Billiton Limited Ordinary Shares is AU000000BHP4and for BHP Billiton Plc Ordinary Shares is GB0000566504. 10 Further Details A media teleconference with Marius Kloppers, including a question and answersession, will be held at 8:00 AM GMT (7:00 PM AEDT) today. Dial-in details willbe provided separately. There will be a joint presentation to analysts and investors on thisannouncement in London at 9:00 AM GMT (8:00 PM AEDT) today at Goldman SachsInternational, River Court Building, 120 Fleet Street, London EC4A 2BB and atGoldman Sachs JBWere, Level 42, Governor Phillip Tower, 1 Farrer Place, Sydney,with a web-casting facility on BHP Billiton's web site (www.bhpbilliton.com).There will also be a dial-in conference call facility for the presentation.Dial-in details will be provided separately. A recording of the presentation will be accessible through BHP Billiton's website. Contacts Australia United KingdomSamantha Evans, Media Relations Andre Liebenberg, Investor RelationsTel: +61 3 9609 2898 Mobile: +61 400 693 915 Tel: +44 20 7802 4131 Mobile: +44 7920 236 974email: [email protected] email: [email protected] Jane Belcher, Investor Relations Illtud Harri, Media RelationsTel: +61 3 9609 3952 Mobile: +61 417 031 653 Tel: +44 20 7802 4195 Mobile: +44 7920 237 246email: [email protected] email: [email protected] South AfricaUnited StatesTracey Whitehead, Investor & Media Relations Alison GIlbert, Investor RelationsTel: US +1 713 599 6100 or UK +44 20 7802 4031 Tel: SA +27 11 376 2121 or UK +44 20 7802 4183Mobile: +44 7917 648 093 Mobile: +44 7769 936 227email: [email protected] Email: [email protected] This announcement is for information purposes only and does not constitute anoffer or invitation to acquire or dispose of any securities or investment adviceor a proposal to make a takeover bid in any jurisdiction. The directors of BHP Billiton accept responsibility for the informationcontained in this announcement. Having taken all reasonable care to ensure thatsuch is the case, the information contained in this announcement is, to the bestof the knowledge and belief of the directors of BHP Billiton, in accordance withthe facts and contains no omission likely to affect its import. The release, publication or distribution of this announcement in jurisdictionsother than the United Kingdom and Australia may be restricted by law andtherefore any persons who are subject to the laws of any other jurisdictionshould inform themselves about, and observe, any applicable requirements. Thisannouncement has been prepared for the purposes of complying with English andAustralian law and the UK City Code and the information disclosed may not be thesame as that which would have been disclosed if this announcement had beenprepared in accordance with the laws of other jurisdictions. It is possible that this announcement could or may contain forward lookingstatements that are based on current expectations or beliefs, as well asassumptions about future events. Reliance should not be placed on any suchstatements because of their very nature, they are subject to known and unknownrisks and uncertainties and can be affected by other factors that could causeactual results, and BHP Billiton's plans and objectives, to differ materiallyfrom those expressed or implied in the forward looking statements. None of the statements concerning expected cost savings, revenue benefits (andresulting incremental EBITDA) and EPS accretion in this announcement should beinterpreted to mean that the future earnings per share of the enlarged BHPBilliton group for current or future financial years will necessarily match orexceed the historical or published earnings per share of BHP Billiton, and theactual cost savings and revenue benefits (and resulting EBITDA enhancement) maybe materially greater or less than estimated. There are several factors which could cause actual results to differ materiallyfrom those expressed or implied in forward looking statements. Among thefactors that could cause actual results to differ materially from thosedescribed in the forward looking statements are BHP Billiton's ability tosuccessfully combine the businesses of BHP Billiton and Rio Tinto and to realiseexpected synergies from that combination, changes in the global, political,economic, business, competitive, market and regulatory forces, future exchangeand interest rates, changes in tax rates and future business combinations ordispositions. BHP Billiton does not undertake any obligation (except as required by law, theListing Rules of ASX Limited or the rules of the UK Listing Authority and theLondon Stock Exchange) to revise or update any forward looking statementcontained in this announcement, regardless of whether those statements areaffected as a result of new information, future events or otherwise. This announcement does not constitute an offer to sell or invitation to purchaseany securities or the solicitation of any vote or approval in any jurisdiction. In connection with BHP Billiton's proposed combination with Rio Tinto by way ofthe proposed Schemes of Arrangement ("Schemes"), the new BHP Billiton shares tobe issued to Rio Tinto shareholders under the terms of the Schemes have notbeen, and will not be, registered under the US Securities Act of 1933, asamended, or under the securities laws of any state, district or otherjurisdiction of the United States, and no regulatory clearances in respect ofthe new BHP Billiton shares have been, or (possibly with certain limitedexceptions) will be, applied for in any jurisdiction of the United States. Itis expected that the new BHP Billiton shares will be issued in reliance upon theexemption from the registration requirements of the US Securities Act providedby Section 3(a)(10) thereof. In the event that the proposed Schemes do not qualify (or BHP Billiton otherwiseelects pursuant to its right to proceed with the transaction in a manner thatdoes not qualify) for an exemption from the registration requirements of the USSecurities Act, BHP Billiton would expect to register the offer and sale ofsecurities it would issue to Rio Tinto US shareholders and Rio Tinto ADS holdersby filing with the SEC a Registration Statement (the "Registration Statement"),which will contain a prospectus ("Prospectus"), as well as other relevantmaterials. No such materials have yet been filed. This communication is not asubstitute for any Registration Statement or Prospectus that BHP Billiton mayfile with the SEC. U.S. INVESTORS AND U.S. HOLDERS OF RIO TINTO SECURITIES AND ALL HOLDERS OF RIOTINTO ADSs ARE URGED TO READ ANY REGISTRATION STATEMENT, PROSPECTUS AND ANYOTHER DOCUMENTS MADE AVAILABLE TO THEM AND/OR FILED WITH THE SEC REGARDING THEPOTENTIAL TRANSACTION, AS WELL AS ANY AMENDMENTS AND SUPPLEMENTS TO THOSEDOCUMENTS, IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANTINFORMATION. If and when filed, investors and security holders will be able to obtain a freecopy of the Registration Statement, the Prospectus as well as other relevantdocuments filed with the SEC at the SEC's website (www.sec.gov), once suchdocuments are filed with the SEC. Copies of such documents may also be obtainedfrom BHP Billiton without charge, once they are filed with the SEC. Dealing Disclosure Requirements Under the provisions of Rule 8.3 of the Takeover Code (the "Code"), if anyperson is, or becomes, "interested" (directly or indirectly) in 1 per cent ormore of any class of "relevant securities" of any of BHP Billiton Plc, BHPBilliton Limited, Rio Tinto plc or Rio Tinto Limited, all "dealings" in any "relevant securities" of that company (including by means of an option in respectof, or a derivative referenced to, any such "relevant securities") must bepublicly disclosed by no later than 3.30 pm (London time) on the London businessday following the date of the relevant transaction. The relevant disclosure must also include details of all "interests" or "dealings" in any class of "relevant securities" of the other company which ispart of its DLC structure. Therefore, if, for example, a disclosure is beingmade in respect of a dealing in securities of BHP Billiton Plc, an accompanyingdisclosure must also be made of interests or short positions held in securitiesof BHP Billiton Limited, even if the person's interest or short position is lessthan 1 per cent of the relevant class. The same approach should be adopted inrespect of securities of Rio Tinto plc and Rio Tinto Limited. Therefore, eachdisclosure should consist of two Rule 8.3 disclosure forms, one for the Plc armof the DLC structure and one for the Limited arm of the DLC structure, releasedas one announcement. This requirement will continue until the date on which the "offer period" ends.If two or more persons act together pursuant to an agreement or understanding,whether formal or informal, to acquire an "interest" in "relevant securities" ofBHP Billiton Plc, BHP Billiton Limited, Rio Tinto plc or Rio Tinto Limited, theywill be deemed to be a single person for the purpose of Rule 8.3. Under the provisions of Rule 8.1 of the Code, all "dealings" in "relevantsecurities" of either BHP Billiton or Rio Tinto by BHP Billiton or Rio Tinto, orby any of their respective "associates", must be disclosed by no later than12.00 noon (London time) on the London business day following the date of therelevant transaction. A disclosure table, giving details of the companies in whose "relevantsecurities" "dealings" should be disclosed, and the number of such securities inissue, can be found on the Takeover Panel's website atwww.thetakeoverpanel.org.uk. "Interests in securities" arise, in summary, when a person has long economicexposure, whether conditional or absolute, to changes in the price ofsecurities. In particular, a person will be treated as having an "interest" byvirtue of the ownership or control of securities, or by virtue of any option inrespect of, or derivative referenced to, securities. Terms in quotation marks are defined in the Code, which can also be found on thePanel's website. If you are in any doubt as to whether or not you are requiredto disclose a "dealing" under Rule 8, you should consult the Panel. APPENDIX I Bases and Sources of Information (a) Unless otherwise stated, financial and other information concerning BHPBilliton and Rio Tinto has been extracted or derived from the interimstatements, preliminary results and the annual report and accounts of eachcompany for the relevant periods, or from published sources or from BHP Billitonmanagement sources. (b) Unless otherwise stated, average share prices and market capitalisationsthroughout this announcement reflect volume-weighted averages. (c) The market value of BHP Billiton Limited shares is based on the closingprice of a BHP Billiton Limited share of A$46.10, provided by the AustralianSecurities Exchange on 31 October 2007, being the last date prior to BHPBilliton's approach to Rio Tinto. (d) The market value of BHP Billiton Plc shares is based on the closingmiddle-market price of a BHP Billiton Plc share of £18.31, provided by theLondon Stock Exchange on 31 October 2007, being the last date prior to BHPBilliton's approach to Rio Tinto. (e) The volume weighted average closing share price over the calendar monthended 31 October 2007, being the last date prior to BHP Billiton's approach toRio Tinto, is A$45.77 for BHP Billiton Limited and £17.99 for BHP Billiton Plc. (f) The market value of BHP Billiton Limited shares is based on the closingprice of a BHP Billiton Limited share of A$42.47, provided by the AustralianSecurities Exchange on 9 November 2007, being the last practicable date prior tothis announcement. (g) The market value of BHP Billiton Plc shares is based on the closingmiddle-market price of a BHP Billiton Plc share of £16.28, provided by theLondon Stock Exchange on 9 November 2007, being the last practicable date priorto this announcement. (h) As at 9 November 2007 (being the last practicable date prior to thisannouncement) there were 2,256,993,546 BHP Billiton Plc shares (including20,072,510 BHP Billiton Plc shares held by BHP Billiton Limited) and3,358,359,496 BHP Billiton Ltd shares in issue. (i) The market value of Rio Tinto Limited shares is based on the closingprice of a Rio Tinto Limited share of A$110.00, provided by the AustralianSecurities Exchange on 31 October 2007, being the last date prior to BHPBilliton's approach to Rio Tinto. (j) The market value of Rio Tinto plc shares is based on the closingmiddle-market price of a Rio Tinto plc share of £44.90, provided by the LondonStock Exchange on 31 October 2007, being the last date prior to BHP Billiton'sapproach to Rio Tinto. (k) The volume weighted average closing share price over the calendar monthended 31 October 2007, being the last date prior to BHP Billiton's approach toRio Tinto is A$109.20 for Rio Tinto Limited and £43.09 for Rio Tinto plc. (l) The market value of Rio Tinto Limited shares is based on the closingprice of a Rio Tinto Limited share of A$130.90, provided by the AustralianSecurities Exchange on 9 November 2007, being the last practicable date prior tothis announcement. (m) The market value of Rio Tinto plc shares is based on the closingmiddle-market price of a Rio Tinto plc share of £56.24, provided by the LondonStock Exchange on 9 November 2007, being the last practicable date prior to thisannouncement. (n) As at 9 November 2007 (being the last practicable date prior to thisannouncement) there were 456,815,943 Rio Tinto Limited shares and 997,082,015Rio Tinto plc shares in issue. Rio Tinto plc, through THA Holdings Australia PtyLimited, holds 171,072,520 shares in Rio Tinto Limited. (o) All references to the share capital or market capitalisation of Rio TintoLimited refer to the publicly traded shares, or free float, of Rio TintoLimited, which excludes the Rio Tinto Limited shares held by a wholly-ownedsubsidiary of Rio Tinto plc. (p) All references to the share capital or market capitalisation of BHPBilliton exclude shares held as treasury shares and shares currently held by BHPBilliton Limited in BHP Billiton Plc and not yet cancelled. (q) The exchange rate of 2.077 US$/£ and 0.927 US$/A$ on 31 October 2007 (r) The exchange rate of 2.095 US$/£ and 0.914 US$/A$ on 9 November 2007 (s) All reference to nominal figures assume an inflation rate of 2.5 per cent (t) In arriving at the estimate of cost savings and revenue benefits, theBoard of BHP Billiton has assumed the following: - that there will be no significant impact on the combined group arisingfrom any decisions made by competition authorities; - that there will be no material change to the market dynamics in thecombined core markets following completion. In particular, BHP Billiton hasbased these estimates on its understanding of current and future market supply,demand and pricing levels; and - there will be no material change to the relative exchange rates in thecombined core markets and geographies following completion. (u) In arriving at the estimate of cost savings and revenue benefits, theBoard of BHP Billiton has assumed that there are comparable operations,processes and procedures within Rio Tinto, except where publicly availableinformation clearly indicates otherwise. BHP Billiton's management, through adetailed understanding of BHP Billiton's cost structure, has determined thesource and scale of realisable cost savings. The one-off implementation cashcosts of achieving the cost savings and revenue benefits represents those costswhich are incremental to BHP Billiton's existing plans. In addition to BHPBilliton management's information, the sources of information that BHP Billitonhas used to arrive at the estimate of cost savings include: - Rio Tinto's annual report and accounts; - Rio Tinto's presentations to analysts; - Rio Tinto's website; - Documents and statements issued by Rio Tinto in connection with itsacquisition of Alcan; - Analysts' research; - Other public information; and - BHP Billiton's knowledge of the industry and of Rio Tinto. (v) The Board of BHP Billiton has not had discussions with Rio Tinto'smanagement regarding the reasonableness of their assumptions supporting theestimate of cost savings and revenue benefits. Therefore, there remains aninherent risk in this forward-looking estimate. (w) Due to the scale of a combined BHP Billiton and Rio Tinto organisation,there may be additional changes to the combined group's operations. In addition,there are several material assumptions underlying the estimate, including theallocation of costs within Rio Tinto, the relative proportion of volumesensitive costs for both BHP Billiton and Rio Tinto and the level of costsnecessary to operate effectively each combined function or activity. A detailedsensitivity analysis was conducted to establish the robustness of the estimatesto a number of changes in the assumptions in addition to contingencies factoredin by management. Because of these factors and the fact that the changes relateto the future, the resulting cost savings and revenue benefits may be materiallygreater or less than those estimated. APPENDIX II Report on Estimated Cost Savings and Revenue Benefits The following are the texts of letters from KPMG and from Goldman SachsInternational relating to the BHP Billiton statement of estimated cost savingsand revenue benefits set out in this document: (a) from KPMG KPMG Audit Plc 8 Salisbury Square London EC4Y 8BB United Kingdom The DirectorsBHP Billiton Limited BHP Billiton Plc180 Lonsdale Street Neathouse PlaceMelbourne Vic 3000 London SW1V 1BH Goldman Sachs International Peterborough Court 133 Fleet Street London EC4A 2BB 12 November 2007 Dear Sirs BHP Billiton's Proposal to Rio Tinto Limited and Rio Tinto plc We refer to the statement made by the directors of BHP Billiton Limited and BHPBilliton Plc ('the Directors') on page three of this document ('the Statement')to the effect that: "...BHP Billiton expects : • US$1.7 billion nominal per annum of cost savings in the third fullyear following completion; achieved through removal of duplication as well asprocurement and operating efficiency savings; and • Further EBITDA enhancement of US$2.0 billion nominal per annum in theseventh full year following completion, driven primarily by the acceleration ofvolumes to customers. In the seventh full year following completion this, therefore, gives a totalincremental EBITDA of US$3.7 billion nominal per annum of quantified synergies. The total one-off implementation cash costs related to achieving these synergiesare expected to amount to US$0.65 billion over the first two full yearsfollowing completion." The Statement has been made in the context of the disclosures in notes (s) to(w) of Appendix I setting out, inter alia, the basis of the Directors' belief(including sources of information) supporting the Statement and their analysisand explanation of the underlying constituent elements. This report is required by Note 8(b) to Rule 19.1 of the City Code on Takeoversand Mergers ('the City Code') and is given for the purpose of complying withthat requirement and for no other purpose. Responsibility The Statement is the responsibility solely of the Directors. It is ourresponsibility and that of Goldman Sachs International to form respectiveopinions, as required by Note 8(b) to Rule 19.1 of the City Code as to whetherthe Statement has been made by the Directors with due care and consideration. Save for any responsibility which we may have to those persons to whom thisreport is expressly addressed, to the fullest extent permitted by law we do notassume any responsibility and will not accept any liability to any other personfor any loss suffered by any such other person as a result of, arising out of,or in connection with this report. Basis of opinion We have discussed the Statement, together with the underlying plans, with theDirectors and with Goldman Sachs International. We have also considered theletter dated 12 November 2007 from Goldman Sachs International to the Directorson the same matter. We conducted our work in accordance with Standards forInvestment Reporting issued by the Auditing Practices Board of the UnitedKingdom. We do not express any opinion as to the achievability of the benefits identifiedby the Directors in the Statement. The Statement is subject to uncertainty asdescribed in this document. Because of the significant changes in the enlargedgroup's operations expected to flow from the merger and because the Statementrelates to the future, the actual merger benefits achieved are likely to bedifferent from those anticipated in the Statement and the differences may bematerial. Opinion On the basis of the foregoing, we report that in our opinion the Directors havemade the Statement, in the form and context in which it is made, with due careand consideration. Yours faithfully KPMG Audit Plc (b) from Goldman Sachs International Goldman Sachs International Peterborough Court 133 Fleet Street London EC4A 2BB The DirectorsBHP Billiton Limited BHP Billiton Plc180 Lonsdale Street Neathouse PlaceMelbourne Vic 3000 London SW1V 1BH 12 November 2007 Dear Sirs BHP BILLITON'S PROPOSAL TO RIO TINTO LIMITED AND RIO TINTO PLC ("RIO TINTO") We refer to the statement of estimated cost savings and revenue benefits, thebases of preparation thereof and the notes thereto (together the "Statement")made by BHP Billiton Limited and BHP Billiton Plc ("BHP Billiton") set out inthis document, for which the Directors of BHP Billiton are solely responsible. We have discussed the Statement (including the assumptions and sources ofinformation referred to therein), with the Directors of BHP Billiton and thoseofficers and employees of BHP Billiton who developed the underlying plans. TheStatement is subject to uncertainty as described in this document and our workdid not involve an independent examination of any of the financial or otherinformation underlying the Statement. We have relied upon the accuracy and completeness of all the financial and otherinformation reviewed by us and have assumed such accuracy and completeness forthe purposes of rendering this letter. We have also reviewed the work carriedout by KPMG and have discussed with them the conclusions stated in their letterof 12 November 2007 addressed to yourselves and ourselves on this matter. We do not express any opinion as to the achievability of the cost savings andestimated revenue benefits identified by the Directors of BHP Billiton. This letter is provided pursuant to our engagement letter with BHP Billitonsolely to the Directors of BHP Billiton in connection with Note 8 (b) of Rule19.1 of the City Code on Takeovers and Mergers and for no other purpose. Weaccept no responsibility to Rio Tinto or its shareholders or any other personother than the Directors of BHP Billiton in respect of the contents of, or anymatter arising out of or in connection with, this letter. On the basis of the foregoing, we consider that the Statement by BHP Billiton,for which the Directors of BHP Billiton are solely responsible, has been madewith due care and consideration in the context in which it was made. Yours faithfully Simon DingemansManaging Director For and on behalf ofGoldman Sachs International APPENDIX III Definitions "£" United Kingdom pounds sterling; "A$" Australian Dollars; "Alcan" Alcan, Inc; "Australia" the Commonwealth of Australia, its states, territories and possessions; "BHP Billiton" BHP Billiton Plc or BHP Billiton Limited, or both, or the BHP Billiton group, as the context may require; "BHP Billiton Limited ordinary shares in the share capital ofOrdinary Shares" BHP Billiton Limited; "BHP Billiton Plc Ordinary Shares" ordinary shares of US$0.50 each in the share capital of BHP Billiton Plc; "Board" or "Directors" means the directors of Rio Tinto plc and Rio Tinto Limited, or the directors of BHP Billiton Plc and BHP Billiton Limited, or the directors of the combined group, as the context may require; "EBITDA" Earnings before Interest, Taxes, Depreciation and Amortisation; "EBIT" Earnings before Interest and Taxes; "Financial Services Authority" the UK Financial Services Authority, which is an independent non-governmental body given statutory powers by the Financial Services and Markets Act 2000; "FY2007" the financial year ended 30 June 2007; "KPMG" KPMG Audit Plc; "Listing Rules" the listing rules of the UK Listing Authority; "Panel" the UK Panel on Takeovers and Mergers; "Regulatory Pre-conditions" the pre-conditions to the posting of the Rio Tinto plc scheme document and the Rio Tinto Limited explanatory statement and related documents; "Rio Tinto ADSs" Rio Tinto plc's American Depositary Shares representing 4 Rio Tinto plc shares per American Depositary Share and listed on the New York Stock Exchange; "Rio Tinto" Rio Tinto plc or Rio Tinto Limited, or both, or the Rio Tinto group, as the context may require; "SEC" United States Securities and Exchange Commission; "UK City Code" the UK City Code on Takeovers and Mergers; "UK Listing Authority" the Financial Services Authority acting in its capacity as the competent authority for the purposes of Part VI of the Financial Services and Markets Act 2000; "United Kingdom" the United Kingdom of Great Britain and Northern Ireland; "US Securities Act" US Securities Act of 1933, as amended from time to time; and "US$" United States dollars. -------------------------- (1) Further details are contained in this announcement (2) Based on 2006 global contestable sales, inclusive of Chinese domesticproduction (3) After adjusting for the intended share buy-back (4) After adjusting for the intended share buy-back and excluding depreciationon the write-up of Rio Tinto's assets as a result of the combination This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
BHP GroupRio Tinto