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BIL
BIBLT
BIL - BHP Billiton Plc - Proposed combination with Rio Tinto to unlock value
BHP Billiton Plc
Share code: BIL
ISIN: GB0000566504
12 November 2007
Number
33/07
BHP BILLITON`S PROPOSED COMBINATION WITH RIO TINTO TO UNLOCK VALUE
HIGHLIGHTS
* 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 Tinto
proposing a combination of their respective companies to create an organisation
without peer in the natural resources industry. The Board of BHP Billiton has
sought and continues to seek to engage in discussions with Rio Tinto with a view
to obtaining the support and recommendation of the Board of Rio Tinto for this
proposal. To date Rio Tinto has not agreed to these discussions.
BHP Billiton now considers it appropriate to make BHP Billiton and Rio Tinto
shareholders aware of this proposal so that it can seek their support for
discussions between the two companies. This announcement is intended to provide
information about BHP Billiton`s proposal and does not constitute an offer and
there can be no assurance that any combination or offer will result.
It is proposed that the combination of BHP Billiton and Rio Tinto be completed
by two inter-conditional schemes of arrangement with each Rio Tinto shareholder
receiving three BHP Billiton shares for each Rio Tinto share held.
This share exchange ratio implies a premium of approximately 28 per cent to the
combined volume weighted average market capitalisations of Rio Tinto Limited and
Rio Tinto plc over the month ended 31 October 2007 (being the last date prior to
BHP Billiton`s approach to Rio Tinto), based on volume weighted average BHP
Billiton share prices over the same period.
Importantly, with the all share proposal, Rio Tinto shareholders receive not
only the premium, but also pro rata access to the current and future economic
benefits of the combination, including a pro rata share of synergies.
This combination is value enhancing for BHP Billiton shareholders, who also gain
from a pro rata share of synergies, strengthened asset portfolio and unrivalled
future growth pipeline.
2 Unlocking Value
BHP Billiton firmly believes that the rationale for combining BHP Billiton and
Rio Tinto is compelling due to the strategic fit, the expected synergies and the
opportunity to create an organisation without parallel. This combination will
unlock 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 most
logical and compelling consolidation opportunity for both companies. The fit in
terms of values, strategy, asset mix and quality, as well as culture, is without
comparison in the natural resources industry.
The two companies each have portfolios of large-scale, low-cost, long-life
assets that are highly complementary and, when combined, would be without peer.
Importantly, the proposal offers material benefits unique to this combination
because of the common and overlapping presence in a number of major resource
basins and joint ownership interests.
* The overlaps offer unique opportunities for material value creation from
realising further economies of scale, sharing infrastructure and removing
duplication. The unique value arises from combining the operations in a
number of major resource basins, especially:
* faster and more efficient development of the combined iron ore resources in
Western Australia;
* optimisation of the Australian coal operations in the Hunter Valley and the
Bowen Basin; and
* improved and expanded development of brownfield and greenfield
opportunities within the combined Aluminium, Base Metals, Diamonds and
Industrial Minerals businesses.
* By combining the two development portfolios, optimising the development
sequence and utilising the combined infrastructure, the development of new
production can be substantially brought forward, and the long-term value
and utilisation of the resources can be optimised.
* Looking beyond the current development portfolios, both companies are
seeking to develop resources in new geographies that frequently have high
infrastructure and other costs, as well as increased risks. Combined, BHP
Billiton and Rio Tinto would have greater ability and increased
opportunities to develop the next generation of world-scale projects in
these new regions, for the benefit of customers, local communities and
shareholders.
B. Quantified Synergies
This combination is expected to generate material synergies - the total being
unique to a combination of BHP Billiton and Rio Tinto due to the substantial
overlap in neighbouring and jointly-owned operations, combined with the usual
areas of duplication. In particular, BHP Billiton expects:
* US$1.7 billion nominal per annum of cost savings in the third full year
following completion, achieved through removal of duplication as well as
procurement and operating efficiency savings; and
* further EBITDA enhancement of US$2.0 billion nominal per annum in the
seventh full year following completion, driven primarily by the
acceleration of volumes to customers.
In the seventh full year following completion this, therefore, gives a total
incremental EBITDA of US$3.7 billion nominal per annum of quantified synergies.
The total one-off implementation cash costs related to achieving these synergies
are expected to amount to US$0.65 billion over the first two full years
following completion.
This estimate of cost savings and further EBITDA enhancement has been reported
on under the City Code on Takeovers and Mergers by KPMG and by BHP Billiton`s
financial advisor Goldman Sachs International. Copies of their letters are
included in parts (a) and (b) respectively of Appendix II.
The estimate of cost savings and further EBITDA enhancement should be read in
conjunction 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 current
strong resources market, and BHP Billiton anticipates that key management
positions would be filled by drawing on the best of both management teams.
In addition, BHP Billiton would invite a number of Rio Tinto`s independent
directors to join the combined Board.
3 A Deliverable Proposal
BHP Billiton has spent considerable time formulating its proposal to Rio Tinto
and is highly confident that it can be successfully completed.
Manageable Regulatory Issues
BHP Billiton has undertaken a thorough analysis of the anti-trust implications
of this combination and is confident that anti-trust issues present no
significant barriers to completing the proposed transaction, and that any
possible regulatory concerns can be readily addressed. BHP Billiton considers
that this process should not impact in a meaningful way either the future
prospects of the combined group or the amount and achievability of synergies.
Importantly, the expanded growth options and speed-to-market benefits available
to the combined group would provide material pro-competitive benefits in key
commodity markets, to the advantage of customers.
BHP Billiton expects the regulatory focus to centre on the combined iron ore
businesses, where the combined group would have a share of contestable iron ore
sales of approximately 27 per cent. In the supply of iron ore, prices are set
by supply and demand and the cost of marginal production. The combined group`s
assets would be low cost in comparison to the marginal producer, meaning the
combined group would have an incentive to invest in those assets and to grow
production. In addition, BHP Billiton expects emerging and new low-cost
producers will increase competition in what is a rapidly evolving marketplace.
BHP Billiton expects that obtaining the regulatory approvals will take between 9
and 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 of
customers. Together, BHP Billiton and Rio Tinto will be able to deliver
increased product volumes to market more quickly, against a backdrop of growing
demand. Supply logistics can be optimised by way of blending or improved
delivery options resulting in greater security of supply to customers. The
combination will create a unique portfolio of low-cost, world-class assets which
will enable product to be delivered to customers throughout global economic
cycles.
C. Preserves Dual Listed Companies (DLC) Structure
In order to deliver the value of the combination to all shareholders, BHP
Billiton has proposed that the transaction be structured as an all share
exchange at a fixed ratio, preserving the DLC structure and each listing
domicile for Rio Tinto shareholders.
Only a combination of BHP Billiton and Rio Tinto could readily accommodate both
parts of Rio Tinto`s DLC structure.
D. Shareholder and Other Approvals
BHP Billiton continues to seek the support and recommendation of the Board of
Rio Tinto for its proposal, which would be subject to receipt of all appropriate
required anti-trust and regulatory approvals. BHP Billiton has proposed that
the combination of BHP Billiton and Rio Tinto be completed by two inter-
conditional schemes of arrangement, the implementation of which would require
approvals of both BHP Billiton and Rio Tinto shareholders and court approvals.
4 Value Proposition for All Shareholders
A. Compelling Premium and Ongoing Participation for Rio Tinto
Shareholders
On a pro forma basis, Rio Tinto shareholders would own approximately 41 per cent
of the combined group (excluding intra-company cross-holdings).
BHP Billiton has proposed that the terms for the combination would involve each
Rio Tinto shareholder receiving three BHP Billiton shares for each Rio Tinto
share. 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 80 per 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 mix and
match basis.
Based on the closing prices of a BHP Billiton Limited Ordinary Share of A$46.10
and a BHP Billiton Plc Ordinary Share of GBP18.31 on 31 October 2007 (being the
last 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 issued ordinary
share capital of Rio Tinto Limited at A$39.5 billion; and
* each Rio Tinto plc Ordinary Share at GBP56.28 and the issued ordinary share
capital of Rio Tinto plc at GBP56.1 billion.
Based on the closing prices of BHP Billiton Limited and BHP Billiton Plc shares
on 31 October 2007, the total consideration offered to shareholders of Rio Tinto
Limited and Rio Tinto plc is US$153.2 billion. This implies a premium of
approximately:
* 25 per cent to the combined market capitalisations of Rio Tinto Limited and
Rio Tinto plc on 31 October 2007 of US$122.1 billion; and
* 30 per cent to the combined volume weighted average market capitalisations
of Rio Tinto Limited and Rio Tinto plc over the month ended 31 October 2007
of US$118.2 billion
Based on the volume weighted average prices of BHP Billiton Limited and BHP
Billiton Plc shares for the month ended 31 October 2007, the total consideration
to 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 market capitalisations
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 total
consideration offered to shareholders of Rio Tinto Limited and Rio Tinto plc is
US$138.1 billion, which represents a premium of approximately 15 per cent to the
combined market capitalisations of Rio Tinto Limited and Rio Tinto plc on 8
November 2007 and 7 November 2007, respectively, being market capitalisations
reflecting closing prices of Rio Tinto Limited and Rio Tinto plc shares
immediately prior to BHP Billiton`s announcement on 8 November 2007 in response
to speculation about a potential offer for Rio Tinto at a premium.
The issue of BHP Billiton Limited shares as a portion of the consideration to
Rio Tinto plc shareholders will rebalance the DLC legs to approximately equal
size.
Rio Tinto shareholders resident in Australia and the United Kingdom will be able
to benefit from capital gains tax rollover relief, other than possibly in
respect of BHP Billiton Limited shares that are received by Rio Tinto plc
shareholders.
B. Continued Participation by Both Sets of Shareholders
Importantly, the proposal does not require any Rio Tinto shareholder to exit; it
delivers to Rio Tinto shareholders not only the premium, but also pro rata
access to the current and future economic benefits of the combination, including
a pro rata share of synergies.
The combination of BHP Billiton and Rio Tinto is value enhancing for BHP
Billiton shareholders. In creating the world`s premier diversified natural
resources company, BHP Billiton shareholders will benefit from a pro rata
exposure to the substantial synergies to be captured and a strengthened asset
portfolio and future growth pipeline.
BHP Billiton expects the combination to be cash flow per share and earnings per
share accretive to BHP Billiton shareholders from the first full fiscal year
following completion.
C. Financial Strength
Importantly, the combined group would be uniquely positioned to meet the strong
demand that both companies are presently enjoying from China, India and other
high 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, and
additional value enhancement through merger synergies, would enable the combined
group to deliver strong long-term performance throughout commodity cycles.
The combined group would have superior cash flows; BHP Billiton`s intention is
for the combined group to target a single A credit rating. BHP Billiton
estimates that the combined group would have the financial flexibility to return
significant capital to its shareholders, and intends to make the first such
return following completion through an initial share buy-back (or other
appropriate mechanism) of approximately US$30 billion. This cash distribution
would allow the combined group to have an efficient balance sheet while
maintaining flexibility for future investment.
BHP Billiton believes that Rio Tinto has in place financing arrangements of
US$40 billion to fund the acquisition of Alcan Inc, which include a change of
control 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`s
largest global diversified natural resources company. BHP Billiton is listed on
stock 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 100
operations in approximately 25 countries. For the financial year ended 30 June
2007, BHP Billiton reported revenue, together with its share of jointly
controlled entities` revenue, of US$47.5 billion, underlying earnings before
interest and tax (underlying EBIT) of US$20.1 billion, net profit attributable
to shareholders of US$13.4 billion and net operating cash flow of US$15.6
billion. 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 ten
CSGs are Aluminium, Base Metals, Diamonds and Specialty Products, Energy Coal,
Iron Ore, Manganese, Metallurgical Coal, Petroleum, Stainless Steel Materials
and 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
alumina and smelting of alumina into aluminium metal. The CSG has
operations in Australia, Brazil, Mozambique, South Africa, and Suriname.
* The Base Metals CSG`s (27 per cent of total BHP Billiton FY2007 revenue)
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 the operation and development of the Olympic Dam ore body. The
Uranium CSG`s results 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 United States.
* The Diamonds and Specialty Products CSG`s (two per cent of total BHP
Billiton FY2007 revenue) principal activities are the mining of diamonds
and titanium minerals. The CSG has operations in Canada and South Africa.
* The Energy Coal CSG`s (10 per cent of total BHP Billiton FY2007 revenue)
principal activities are the mining and marketing of export thermal
(energy) coal. The CSG has operations in Australia, Colombia, South Africa
and the 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. The
CSG`s principal operations are based in the Pilbara region of north Western
Australia and in Brazil.
* The Manganese CSG`s (three per cent of total BHP Billiton FY2007 revenue)
principal activities are the mining of manganese ore and production of
manganese metal and alloys. The CSG has operations in Australia and South
Africa.
* The Metallurgical Coal CSG`s (eight per cent of total BHP Billiton FY2007
revenue) principal activities are the mining of metallurgical coal in
Australia.
* The Petroleum CSG`s (12 per cent of total BHP Billiton FY2007 revenue)
principal activities are oil and gas exploration, production, development
and marketing in Australia, the United Kingdom, the United States, Algeria,
Trinidad and Tobago, and Pakistan.
* The Stainless Steel Materials CSG`s (15 per cent of total BHP Billiton
FY2007 revenue) principal activities are producing nickel concentrate
primarily for 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 the
Australian, 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 and
North America and significant businesses in South America, Asia, Europe and
southern Africa. Through its global operations, Rio Tinto produces iron ore,
metallurgical and thermal coal, copper, bauxite, alumina, aluminium, uranium and
diamonds as well as other base metals and industrial minerals.
Rio Tinto has recently expanded its aluminium operations with the acquisition of
a majority interest in Alcan, creating the world`s leading supplier of
aluminium.
7 Management and Employees
The existing employment rights, including pension rights, of all management and
employees of Rio Tinto will be fully safeguarded.
8 Regulation
The proposal would be subject to satisfaction or waiver of Regulatory Pre-
conditions, relating to the obtaining of regulatory clearances from the European
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 if
these 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 BHP
Billiton Ordinary Shares held by BHP Billiton Limited) and 3,358,359,496 BHP
Billiton Limited Ordinary Shares were in issue. The International Securities
Identification Number for BHP Billiton Limited Ordinary Shares is AU000000BHP4
and for BHP Billiton Plc Ordinary Shares is GB0000566504.
10 Further Details
A media teleconference with Marius Kloppers, including a question and answer
session, will be held at 8:00 AM GMT (7:00 PM AEDT) today. Dial-in details will
be provided separately.
There will be a joint presentation to analysts and investors on this
announcement in London at 9:00 AM GMT (8:00 PM AEDT) today at Goldman Sachs
International, River Court Building, 120 Fleet Street, London EC4A 2BB and at
Goldman 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 web
site.
Contacts
Australia United Kingdom
Samantha Evans, Media Relations Andre Liebenberg, Investor Relations
Tel: +61 3 9609 2898 Mobile: +61 400 Tel: +44 20 7802 4131 Mobile: +44
693 915 7920 236 974
email:Samantha.Evans@bhpbilliton.com email:Andre.Liebenberg@bhpbilliton.com
Jane Belcher, Investor Relations Illtud Harri, Media Relations
Tel: +61 3 9609 3952 Tel: +44 20 7802 4195
Mobile: +61 417 031 653 Mobile: +44 7920 237 246
email:Jane.H.Belcher@bhpbilliton.com email: Illtud.Harri@bhpbilliton.com
United States South Africa
Tracey Whitehead, Investor & Media Alison GIlbert, Investor Relations
Relations Tel: SA +27 11 376 2121 or
Tel: US +1 713 599 6100 or UK +44 20 7802 4183
UK +44 20 7802 4031 Mobile: +44 7769 936 227
Mobile: +44 7917 648 093 Email: Alison.Gilbert@bhpbilliton.com
email:Tracey.Whitehead@bhpbilliton.com
This announcement is for information purposes only and does not constitute an
offer or invitation to acquire or dispose of any securities or investment advice
or a proposal to make a takeover bid in any jurisdiction.
The directors of BHP Billiton accept responsibility for the information
contained in this announcement. Having taken all reasonable care to ensure that
such is the case, the information contained in this announcement is, to the best
of the knowledge and belief of the directors of BHP Billiton, in accordance with
the facts and contains no omission likely to affect its import.
The release, publication or distribution of this announcement in jurisdictions
other than the United Kingdom and Australia may be restricted by law and
therefore any persons who are subject to the laws of any other jurisdiction
should inform themselves about, and observe, any applicable requirements. This
announcement has been prepared for the purposes of complying with English and
Australian law and the UK City Code and the information disclosed may not be the
same as that which would have been disclosed if this announcement had been
prepared in accordance with the laws of other jurisdictions.
It is possible that this announcement could or may contain forward looking
statements that are based on current expectations or beliefs, as well as
assumptions about future events. Reliance should not be placed on any such
statements because of their very nature, they are subject to known and unknown
risks and uncertainties and can be affected by other factors that could cause
actual results, and BHP Billiton`s plans and objectives, to differ materially
from those expressed or implied in the forward looking statements.
None of the statements concerning expected cost savings, revenue benefits (and
resulting incremental EBITDA) and EPS accretion in this announcement should be
interpreted to mean that the future earnings per share of the enlarged BHP
Billiton group for current or future financial years will necessarily match or
exceed the historical or published earnings per share of BHP Billiton, and the
actual cost savings and revenue benefits (and resulting EBITDA enhancement) may
be materially greater or less than estimated.
There are several factors which could cause actual results to differ materially
from those expressed or implied in forward looking statements. Among the
factors that could cause actual results to differ materially from those
described in the forward looking statements are BHP Billiton`s ability to
successfully combine the businesses of BHP Billiton and Rio Tinto and to realise
expected synergies from that combination, changes in the global, political,
economic, business, competitive, market and regulatory forces, future exchange
and interest rates, changes in tax rates and future business combinations or
dispositions.
BHP Billiton does not undertake any obligation (except as required by law, the
Listing Rules of ASX Limited or the rules of the UK Listing Authority and the
London Stock Exchange) to revise or update any forward looking statement
contained in this announcement, regardless of whether those statements are
affected as a result of new information, future events or otherwise.
This announcement does not constitute an offer to sell or invitation to purchase
any 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 of
the proposed Schemes of Arrangement ("Schemes"), the new BHP Billiton shares to
be issued to Rio Tinto shareholders under the terms of the Schemes have not
been, and will not be, registered under the US Securities Act of 1933, as
amended, or under the securities laws of any state, district or other
jurisdiction of the United States, and no regulatory clearances in respect of
the new BHP Billiton shares have been, or (possibly with certain limited
exceptions) will be, applied for in any jurisdiction of the United States. It
is expected that the new BHP Billiton shares will be issued in reliance upon the
exemption from the registration requirements of the US Securities Act provided
by Section 3(a)(10) thereof.
In the event that the proposed Schemes do not qualify (or BHP Billiton otherwise
elects pursuant to its right to proceed with the transaction in a manner that
does not qualify) for an exemption from the registration requirements of the US
Securities Act, BHP Billiton would expect to register the offer and sale of
securities it would issue to Rio Tinto US shareholders and Rio Tinto ADS holders
by filing with the SEC a Registration Statement (the "Registration Statement"),
which will contain a prospectus ("Prospectus"), as well as other relevant
materials. No such materials have yet been filed. This communication is not a
substitute for any Registration Statement or Prospectus that BHP Billiton may
file with the SEC.
U.S. INVESTORS AND U.S. HOLDERS OF RIO TINTO SECURITIES AND ALL HOLDERS OF RIO
TINTO ADSs ARE URGED TO READ ANY REGISTRATION STATEMENT, PROSPECTUS AND ANY
OTHER DOCUMENTS MADE AVAILABLE TO THEM AND/OR FILED WITH THE SEC REGARDING THE
POTENTIAL TRANSACTION, AS WELL AS ANY AMENDMENTS AND SUPPLEMENTS TO THOSE
DOCUMENTS, IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION.
If and when filed, investors and security holders will be able to obtain a free
copy of the Registration Statement, the Prospectus as well as other relevant
documents filed with the SEC at the SEC`s website (http://www.sec.gov), once
such documents are filed with the SEC. Copies of such documents may also be
obtained from 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 any
person is, or becomes, "interested" (directly or indirectly) in 1 per cent or
more of any class of "relevant securities" of any of BHP Billiton Plc, BHP
Billiton Limited, Rio Tinto plc or Rio Tinto Limited, all "dealings" in any
"relevant securities" of that company (including by means of an option in
respect of, or a derivative referenced to, any such "relevant securities") must
be publicly disclosed by no later than 3.30 pm (London time) on the London
business day 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 is
part of its DLC structure. Therefore, if, for example, a disclosure is being
made in respect of a dealing in securities of BHP Billiton Plc, an accompanying
disclosure must also be made of interests or short positions held in securities
of BHP Billiton Limited, even if the person`s interest or short position is less
than 1 per cent of the relevant class. The same approach should be adopted in
respect of securities of Rio Tinto plc and Rio Tinto Limited. Therefore, each
disclosure should consist of two Rule 8.3 disclosure forms, one for the Plc arm
of the DLC structure and one for the Limited arm of the DLC structure, released
as 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" of
BHP Billiton Plc, BHP Billiton Limited, Rio Tinto plc or Rio Tinto Limited, they
will 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 "relevant
securities" of either BHP Billiton or Rio Tinto by BHP Billiton or Rio Tinto, or
by any of their respective "associates", must be disclosed by no later than
12.00 noon (London time) on the London business day following the date of the
relevant transaction.
A disclosure table, giving details of the companies in whose "relevant
securities" "dealings" should be disclosed, and the number of such securities in
issue, can be found on the Takeover Panel`s website at
www.thetakeoverpanel.org.uk.
"Interests in securities" arise, in summary, when a person has long economic
exposure, whether conditional or absolute, to changes in the price of
securities. In particular, a person will be treated as having an "interest" by
virtue of the ownership or control of securities, or by virtue of any option in
respect of, or derivative referenced to, securities.
Terms in quotation marks are defined in the Code, which can also be found on the
Panel`s website. If you are in any doubt as to whether or not you are required
to 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 BHP
Billiton and Rio Tinto has been extracted or derived from the interim
statements, preliminary results and the annual report and accounts of each
company for the relevant periods, or from published sources or from BHP
Billiton management sources.
B Unless otherwise stated, average share prices and market capitalisations
throughout this announcement reflect volume-weighted averages.
C The market value of BHP Billiton Limited shares is based on the closing
price of a BHP Billiton Limited share of A$46.10, provided by the
Australian Securities Exchange on 31 October 2007, being the last date
prior to BHP Billiton`s approach to Rio Tinto.
D The market value of BHP Billiton Plc shares is based on the closing middle-
market price of a BHP Billiton Plc share of GBP18.31, provided by the
London Stock Exchange on 31 October 2007, being the last date prior to BHP
Billiton`s approach to Rio Tinto.
E The volume weighted average closing share price over the calendar month
ended 31 October 2007, being the last date prior to BHP Billiton`s approach
to Rio Tinto, is A$45.77 for BHP Billiton Limited and GBP17.99 for BHP
Billiton Plc.
F The market value of BHP Billiton Limited shares is based on the closing
price of a BHP Billiton Limited share of A$42.47, provided by the
Australian Securities Exchange on 9 November 2007, being the last
practicable date prior to this announcement.
G The market value of BHP Billiton Plc shares is based on the closing middle-
market price of a BHP Billiton Plc share of GBP16.28, provided by the
London Stock Exchange on 9 November 2007, being the last practicable date
prior to this announcement.
I As at 9 November 2007 (being the last practicable date prior to this
announcement) there were 2,256,993,546 BHP Billiton Plc shares (including
20,072,510 BHP Billiton Plc shares held by BHP Billiton Limited) and
3,358,359,496 BHP Billiton Ltd shares in issue.
J The market value of Rio Tinto Limited shares is based on the closing price
of a Rio Tinto Limited share of A$110.00, provided by the Australian
Securities Exchange on 31 October 2007, being the last date prior to BHP
Billiton`s approach to Rio Tinto.
K The market value of Rio Tinto plc shares is based on the closing middle-
market price of a Rio Tinto plc share of GBP44.90, provided by the London
Stock Exchange on 31 October 2007, being the last date prior to BHP
Billiton`s approach to Rio Tinto.
L The volume weighted average closing share price over the calendar month
ended 31 October 2007, being the last date prior to BHP Billiton`s approach
to Rio Tinto is A$109.20 for Rio Tinto Limited and GBP43.09 for Rio Tinto
plc.
M The market value of Rio Tinto Limited shares is based on the closing price
of a Rio Tinto Limited share of A$130.90, provided by the Australian
Securities Exchange on 9 November 2007, being the last practicable date
prior to this announcement.
N The market value of Rio Tinto plc shares is based on the closing middle-
market price of a Rio Tinto plc share of GBP56.24, provided by the London
Stock Exchange on 9 November 2007, being the last practicable date prior to
this announcement.
O As at 9 November 2007 (being the last practicable date prior to this
announcement) there were 456,815,943 Rio Tinto Limited shares and
997,082,015 Rio Tinto plc shares in issue. Rio Tinto plc, through THA
Holdings Australia Pty Limited, holds 171,072,520 shares in Rio Tinto
Limited.
P All references to the share capital or market capitalisation of Rio Tinto
Limited refer to the publicly traded shares, or free float, of Rio Tinto
Limited, which excludes the Rio Tinto Limited shares held by a wholly-owned
subsidiary of Rio Tinto plc.
Q All references to the share capital or market capitalisation of BHP
Billiton exclude shares held as treasury shares and shares currently held
by BHP Billiton Limited in BHP Billiton Plc and not yet cancelled.
R The exchange rate of 2.077 US$/GBP and 0.927 US$/A$ on 31 October 2007
The exchange rate of 2.095 US$/GBP and 0.914 US$/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, the Board
of BHP Billiton has assumed the following:
- that there will be no significant impact on the combined group arising from
any decisions made by competition authorities;
- that there will be no material change to the market dynamics in the
combined core markets following completion. In particular, BHP Billiton has
based 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 the
combined core markets and geographies following completion.
U In arriving at the estimate of cost savings and revenue benefits, the Board
of BHP Billiton has assumed that there are comparable operations, processes
and procedures within Rio Tinto, except where publicly available
information clearly indicates otherwise. BHP Billiton`s management, through
a detailed understanding of BHP Billiton`s cost structure, has determined
the source and scale of realisable cost savings. The one-off implementation
cash costs of achieving the cost savings and revenue benefits represents
those costs which are incremental to BHP Billiton`s existing plans. In
addition to BHP Billiton management`s information, the sources of
information that BHP Billiton has 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 its
acquisition 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`s w
management regarding the reasonableness of their assumptions supporting the
estimate of cost savings and revenue benefits. Therefore, there remains an
inherent 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 the allocation of costs within Rio Tinto, the relative proportion
of volume sensitive costs for both BHP Billiton and Rio Tinto and the level
of costs necessary to operate effectively each combined function or
activity. A detailed sensitivity analysis was conducted to establish the
robustness of the estimates to a number of changes in the assumptions in
addition to contingencies factored in by management. Because of these
factors and the fact that the changes relate to the future, the resulting
cost savings and revenue benefits may be materially greater 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 Sachs
International relating to the BHP Billiton statement of estimated cost savings
and revenue benefits set out in this document:
A from KPMG
KPMG Audit Plc
8 Salisbury Square
London EC4Y 8BB
United Kingdom
The Directors
BHP Billiton Limited BHP Billiton Plc
180 Lonsdale Street Neathouse Place
Melbourne 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 BHP
Billiton 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 full year
following completion; achieved through removal of duplication as well as
procurement and operating efficiency savings; and
* Further EBITDA enhancement of US$2.0 billion nominal per annum in the
seventh full year following completion, driven primarily by the
acceleration of volumes to customers.
In the seventh full year following completion this, therefore, gives a total
incremental EBITDA of US$3.7 billion nominal per annum of quantified synergies.
The total one-off implementation cash costs related to achieving these synergies
are expected to amount to US$0.65 billion over the first two full years
following 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 analysis
and explanation of the underlying constituent elements.
This report is required by Note 8(b) to Rule 19.1 of the City Code on Takeovers
and Mergers (`the City Code`) and is given for the purpose of complying with
that requirement and for no other purpose.
Responsibility
The Statement is the responsibility solely of the Directors. It is our
responsibility and that of Goldman Sachs International to form respective
opinions, as required by Note 8(b) to Rule 19.1 of the City Code as to whether
the 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 this
report is expressly addressed, to the fullest extent permitted by law we do not
assume any responsibility and will not accept any liability to any other person
for 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 the
Directors and with Goldman Sachs International. We have also considered the
letter dated 12 November 2007 from Goldman Sachs International to the Directors
on the same matter. We conducted our work in accordance with Standards for
Investment Reporting issued by the Auditing Practices Board of the United
Kingdom.
We do not express any opinion as to the achievability of the benefits identified
by the Directors in the Statement. The Statement is subject to uncertainty as
described in this document. Because of the significant changes in the enlarged
group`s operations expected to flow from the merger and because the Statement
relates to the future, the actual merger benefits achieved are likely to be
different from those anticipated in the Statement and the differences may be
material.
Opinion
On the basis of the foregoing, we report that in our opinion the Directors have
made the Statement, in the form and context in which it is made, with due care
and consideration.
Yours faithfully
KPMG Audit Plc
B from Goldman Sachs International
Goldman Sachs International
Peterborough Court
133 Fleet Street
London EC4A 2BB
The Directors
BHP Billiton Limited BHP Billiton Plc
180 Lonsdale Street Neathouse Place
Melbourne 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, the
bases of preparation thereof and the notes thereto (together the "Statement")
made by BHP Billiton Limited and BHP Billiton Plc ("BHP Billiton") set out in
this document, for which the Directors of BHP Billiton are solely responsible.
We have discussed the Statement (including the assumptions and sources of
information referred to therein), with the Directors of BHP Billiton and those
officers and employees of BHP Billiton who developed the underlying plans. The
Statement is subject to uncertainty as described in this document and our work
did not involve an independent examination of any of the financial or other
information underlying the Statement.
We have relied upon the accuracy and completeness of all the financial and other
information reviewed by us and have assumed such accuracy and completeness for
the purposes of rendering this letter. We have also reviewed the work carried
out by KPMG and have discussed with them the conclusions stated in their letter
of 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 and
estimated revenue benefits identified by the Directors of BHP Billiton.
This letter is provided pursuant to our engagement letter with BHP Billiton
solely to the Directors of BHP Billiton in connection with Note 8 (b) of Rule
19.1 of the City Code on Takeovers and Mergers and for no other purpose. We
accept no responsibility to Rio Tinto or its shareholders or any other person
other than the Directors of BHP Billiton in respect of the contents of, or any
matter 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 made
with due care and consideration in the context in which it was made.
Yours faithfully
Simon Dingemans
Managing Director
For and on behalf of Goldman Sachs International
APPENDIX III
Definitions
"GBP" 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"ordinary shares in the share capital of
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.
Date: 12/11/2007 08:33:01 Produced by the JSE SENS Department.
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