Rio and BHP soar on takeover rumours

Shares in Rio Tinto Limited (RIO) were as much as 11% higher in afternoon trading, riding a wave of takeover speculation. Citigroup said in a note to clients that Rio Tinto's considerable cashflow could well make it attractive takeover target for private equity firms, or more likely, BHP Billiton Limited (BHP).

The rumour, which hit the Australian market at about 1230, was that BHP was putting together a hostile bid for Rio after a friendly offer of around $100-$110 per share had been rejected.

Within minutes, shares in Rio Tinto had run more than 10%.

Head dealer at SHAW Stockbroking Jamie Spiteri said that had heard speculation that someone had approached Rio with a takeover offer and that that offer was knocked back.

"BHP could be part of that mix, but really it's just a rumour," he said.

The rumour started from a note on May 4 put out by Citigroup analyst Clarke Wilkins, which said that the world's biggest miner could afford the A$100 billion-plus needed to take out the smaller Rio Tinto.

�Rio Tinto's strong cash flow could also make it an attractive target for private equity firms�, he wrote.

"But we think BHP Billiton is a much more likely bidder given synergies and nationalistic control issue of Australian assets".

Analysts at Merrill Lynch and Goldman Sachs have also said over recent days there could be consolidation among the world's big miners.

The speculation follows in the wake aluminium giant Alcoa Inc's (AAI) US$27 billion hostile bid for Canadian rival Alcan.

A Melbourne-based Rio Tinto spokesman said the company doesn�t comment on market speculation, while a BHP Billiton spokeswoman also declined to comment on the speculation.

However, CEO hopeful and current group president of carbon steel materials Chris Lynch said the company has people who are looking at a lot of different things.

He went on to say that BHP itself could be at risk from a private equity predator.

The comments seemed to spark further buying in BHP.

Just after market close, Rio Tinto informed the Australian Stock Exchange that it is not aware of any takeover approach from larger rival BHP.

"Rio Tinto is not aware of any takeover approach from BHP Billiton," Rio said in the statement.

At 1615 AEST, shares in Rio Tinto finished $5.80, or 6.5% higher at $95.50, while BHP ended up 75c, or 2.4% at $31.93.