Following the news that Rio Tinto had chosen Yancoal as its ‘preferred’ buyer of its coal assets, edging ahead of Glencore, Glencore has fought back with a new and improved bid.
In an announcement, the company has offered $2.675 billion for Rio Tinto’s Coal & Allied industries Limited.
An offer you can’t refuse
So, what is Glencore’s “improved” offer?
Rio Tinto had outlined a number of issues that were mitigating factors in the decision to favour the bid from Yancoal. These included Value, Payment timing and Regulatory Risk.
Glencore’s new offer addresses these issues head on.
Glencore vs Yancoal: The facts
Glencore’s new offer is at least $225million greater than the Yancoal Proposal ($2.55 billion).
There will be no deferred payments, meaning Rio Tinto will receive the full $2.675 billion in full upon completion of the deal.
The offer remains conditional only on approval from China, Korea, Taiwan and Australia. Japanese regulatory approval to acquire C&A has already been obtained.
Glencore believes that there is no legal basis to consider that such approvals will not be obtained.
Glencore's Offer is supported by a US$225 million deposit which will be forfeited if the transaction does not complete as a result of a failure to obtain a regulatory approval. Refer Appendix for further details on regulatory approvals.
Glencore believes that it will obtain all regulatory approvals in a timely manner and that its offer fully compensates Rio Tinto for any potential delays beyond Yancoal's expected completion date as announced by Rio Tinto.
In addition to receiving the earnings up to 1 September 2017 Rio Tinto will receive the greater of:
- post tax cashflows of C&A for each month during the period from 1 September 2017 to completion, or US$25 million per month post tax for each month during the period from 1 September 2017 to completion.
- This mechanism will also ensure that Rio Tinto will have no significant downside coal price exposure from 1 September 2017 onwards.
Glencore's Offer is fully funded and is backed by a fully enforceable guarantee from Glencore Plc.
Glencore has no discretionary right to terminate the deal where funding is not obtained on terms to its satisfaction - if regulatory approvals are obtained then Glencore must complete.
Glencore's Offer therefore provides far greater funding certainty to Rio Tinto shareholders.
Rio Tinto is yet to respond to this new and improved proposal, but Glencore is confident that it satisfies the criteria for a “superior proposal” in the fact that it delivers much greater value to shareholders.
Per way of negotiation, Rio Tinto must provide Yancoal with the opportunity to present any counter offer.
If successful, Glenore intends to mitigate its overall financial commitment via a sale / monetisation of assets (prioritising its coal portfolio) of no less than US$1.5 billion, including exploring the option of selling down up to 50% of its interest in the C&A mines.
Glencore's Offer will automatically lapse if it is not declared by Rio Tinto to be a superior proposal by 6pm (BST) on 26 June 2017 and thereafter if a binding SPA has not been executed by 4pm (AEST) on 5 July 2017.