BHP raises Rio bid; no immediate Chinese riposte

By James Regan

SYDNEY (Reuters) - BHP Billiton (BHP.AX) launched a sweetened but hostile $147.4 billion bid for rival miner Rio Tinto (RIO.AX) on Wednesday, ending months of speculation and setting the stage for the world's second-largest takeover.

BHP hopes to sell Rio shareholders its idea of assembling a super miner, supplying the lion's share of the world's industries with millions of tonnes of minerals, but runs the risk of igniting a bidding war with Rio's largest shareholder, state-run aluminum group Aluminum Corp of China (Chinalco).

BHP (BLT.L) boosted its initial approach by 13 percent, offering 3.4 of its shares for every Rio (RIO.L) share, but Rio spurned the new offer after previously rejecting a November proposal of three shares as undervaluing the firm.

"BHP Billiton's offers, while improved, still fail to recognize the underlying value of Rio Tinto's quality assets and prospects," Rio Chairman Paul Skinner said.

"Rio Tinto shareholders will now decide," BHP Chief Executive Marius Kloppers told reporters. He added: "This is our first and only offer," though he later would not say if that meant it was the final one.

Several Rio shareholders said the sweetened bid was not enough to win them over and reate the world's third-richest company, ranked behind only Exxon Mobil (XOM.N) and General Electric (GE.N).

A successful marriage would be the world's second biggest takeover, ranking only behind Vodafone's (VOD.L) $172-billion purchase of Mannesmann in 1999.

"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 (ADN.L), who holds both Rio and BHP shares.

Shares in BHP, which reported a 2.4 percent dip in first-half profit to $6.017 billion, tumbled 7.5 percent to A$36.66 in Sydney -- their steepest one-day percentage fall in 20 years. They ended 4.8 percent weaker in London at 15.20 pounds while Rio slipped 0.3 percent to 54.17 pounds.

Rio shares ended 4.6 percent higher than the value of BHP's offer, suggesting investors were counting on BHP bumping up the bid again. BHP needs at least 50 percent of holders of Rio's Australian and London shares to accept.

London share prices value Rio at a price earnings ratio of 21, versus 14 for BHP, 12 for Anglo American (AAL.L) and 19 for Xstrata (XTA.L), a possible bid target of Brazil's Vale

(VALE5.SA).

(For full BHP/Rio coverage, click ID:nSYD110759)

CHINA HOLDS FIRE

BHP's designs on Rio hit an obstacle last week when Chinalco teamed up with Alcoa Inc (AA.N) to buy $14 billion worth of Rio stock, giving it just over 9 percent of the company.