Filed under: Deals, Alcoa Inc (AA), BHP Billiton Ltd ADR (BHP), Rio Tinto plc ADS (RTP)
BHP Billiton (NYSE: BHP) raised its bid for fellow metals company Rio Tinto (NYSE: RTP) from three shares to Rio’s one to 3.4 shares. RTP never made a counter to the original offer. It simply said it was too low.
BHP management says it can get $3.4 billion in cost savings and revenue gains out of a business combination. “It’s a lot fairer than the offer we’ve had before, (but) it’s by no means a knock-out offer,” said Bertie Thomson, a fund manager at Aberdeen Asset Management according to Reuters.
RTP shares are up over 100% during the last year. Fellow metals company Alcoa (NYSE: AA) shares are only up 5%. It would be hard to make the case that Rio Tinto is that much superior off. RTP trades at almost six times revenue.
Metals prices, which are the largest factor in an ongoing share price rally in stocks like Rio, are based to a very significant extent on global demand. That, in turn, is based on the health of the global economy. A massive downturn in the global economy could swiftly undermine commodity prices, especially metals.
In much less than four years, RTP’s share price has quadrupled. It is a very, very long bet that the price of metals can keep that kind of momentum going.
Douglas A. McIntyre is an editor at 247wallst.com.
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