BHP pitches $30 bln buyback at Rio shareholders

By James Regan and Michael Smith

SYDNEY (Reuters) - BHP Billiton Ltd/Plc (BHP.AX) mapped out its plan on Monday to acquire rival Rio Tinto Ltd/Plc (RIO.AX), promising to hand $30 billion to shareholders via a share buyback if the deal goes through and signaling it was ready for a long fight.

BHP's new chief executive, Marius Kloppers, said he would step up the pressure to draw Rio's board into talks by pitching BHP's $140 billion takeover proposal to major Rio shareholders, more than two-thirds of whom also own BHP stock.

"The process will start now," Kloppers, who has been CEO for six weeks, told a media telephone conference, adding that as no formal offer has been launched there was no need for BHP to consider going hostile.

BHP (BLT.L) has so far failed to persuade Rio's board to discuss its three-for-one all-scrip proposal aimed at assembling a mega force in mining of everything from iron ore and manganese to copper and diamonds.

"Our focus is on the proposal that is on the table ... We will be very patient to get this message out," Kloppers said.

A Rio spokesman said there was nothing new in a nine-page document issued by BHP outlining its vision for a combined company. The proposal, already rejected by Rio's board as too low, remained "well out of the ballpark," the spokesman said.

"It looks like BHP may have to up the ante a bit," said Eric Betts, equities strategist at Nomura Australia. "It could take a while for this thing to play out."

Kloppers said a merger with Rio could mean $3.7 billion in annual savings after seven years through synergies in iron ore, coal and other activities. He gave no timeframe for the proposed share buyback.

The savings would mostly be through higher production runs and efficiencies of scale, which would also help buffer cyclical downswings in commodities markets.

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BHP, the world's biggest mining house, vowed to maintain a progressive dividend policy post-merger, reassuring investor concern that there could be little cash left for future dividends.

Analysts are divided on whether Rio's board is looking for a cash-or-scrip-sweetened alternative proposal from BHP, or wants to keep BHP at bay altogether.

Sources have said Rio's board is open to a higher BHP approach, especially if it involves a cash component.

"It seems they (Rio) are open to a bid but they just think the price is too low ... (BHP) are wanting to have a conversation with them to talk about the bid, talk about the synergies, talk about the rationale," one source said.

Under the proposal, Rio shareholders would hold 41 percent of the combined company.