Titanic BHP/Rio Tinto battle ends

The collapse of the long-running attempt by the world's largest mining group, BHP, to buy the third largest, Rio Tinto, brought the curtain down on a deal that would have been the second largest takeover in history.

Anthony Hilton
Anthony Hilton

It also brought to an end one of the most intriguing and subtle PR strategies employed by Rio Tinto to keep the predator at bay, a strategy that underlines the difficulties of defending a company when shareholder roles are dominated by short-term traders rather than long-term investors.

The starting point was that Rio Tinto did not want to be taken over - whereas 20 years ago management could fight such a deal on the basis that they were the best management team to develop the business in the long term, that defence now has limitations because so many shareholders do not intend to be around for the long term. Typically when a proposed deal is announced, the long-term shareholders sell in the market and the shares are snapped up by hedge funds and arbitrageurs. The challenge for the defending PROs is that they are defending a bid that a substantial number of the shareholders actually want to succeed.

The unspoken rule is that the defence must not be so powerful that the bidder walks away. Though no-one admits it, it is meant to be a dance with a choice of pre-ordained steps but only one outcome.

This gives rise to some bizarre conversations. If a writer sympathetic to the defence says the deal should be banned on the grounds that it would create a near-monopoly, the defence would try to defuse the argument because it is too powerful. Likewise they would argue the opposite if the writer suggested that the commodity prices are too high and would soon crash. Thus the defence devotes its time to maintaining the credibility of the threat, rather than rubbishing it, because if people thought the bid was likely to fail, the shares would fall. That would heighten pressure on management to capitulate while there was still time so the bid would succeed.

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