MELBOURNE India's Tata Steel (TISC.BO) has raised its stake in Australia's Riversdale Mining RIV.AX, making it harder for miner Rio Tinto (RIO.AX) to seal its $3.9 billion bid for the Mozambique-focused coal miner.
Riversdale shares fell as much as 6.5 percent to a three-month low of A$14.48 on Wednesday, valuing the group 10 percent below Rio's offer, indicating growing doubts about the deal going ahead.
"The share price is telling you that the market thinks that it's going to end in a stalemate, the deal will fall over and Rio will walk," said CLSA analyst Hayden Bairstow.
Tata Steel, already Riversdale's biggest shareholder, spent more than A$100 million ($101 million) upping its stake in Riversdale to 27.1 percent from 24.2 percent, according to a shareholder notice, confirming what sources had told Reuters.
Riversdale's second-largest shareholder, top Brazilian steelmaker CSN (CSNA3.SA), also recently increased its stake in the Australia-listed company to 19.9 percent.
Tata Steel, the world's No. 7 steelmaker, and CSN now own 47 percent of Riversdale, making it extremely difficult for Rio (RIO.L) to secure the 50.1 percent acceptances it wants before going ahead with the deal.
Rio now needs almost 100 percent acceptances from minority shareholders and has so far won over just 17 percent of the company.
"Rio seems to be in extreme difficulty," said Gregory Lafitte, Asia merger arbitrage trader at LCM in Hong Kong.
"It's possible to see Rio Tinto reduce the 50 percent acceptance condition or reach a strategic agreement with Tata and CSN," he said.
Rio Tinto declined to comment on the status of its talks with Riversdale's shareholders.
SECURING COAL SUPPLIES
Rio last month extended the offer deadline to March 18 after Tata Steel said it had yet to decide whether to hold or sell its stake.
Tata Steel Managing Director Hemant Nerurkar told Reuters last month the company was mainly interested in securing coking coal from Riversdale for its steel mills and was talking to Rio about a range of options.
Tata already has a stake in Riversdale's Benga coking coal project in Mozambique with an agreement to buy supply from the mine.
CSN said when it bought into Riversdale it wanted to secure coking coal supplies, but it has not said anything about its intentions since Rio Tinto launched its bid.
Under Australian rules, Tata and CSN can continue to increase their stakes in Riversdale by 3 percent every six months without being forced to make a full takeover offer.
The two companies would probably like to see Rio Tinto, with deeper pockets and more technological skills than Riversdale, developing Riversdale's Mozambique mines and infrastructure, analysts said.
At the same time the steelmakers might want the coal mine to remain out of Rio's hands, because they do not want coking coal supplies to come under as tight a control as iron ore, where supplies are largely controlled by three miners, including Rio.
Riversdale's shares closed down 3.4 percent at A$14.97.
($1 = 0.986 Australian Dollars)
(Additional reporting by Silvia Antonioli in LONDON and Prashant Mehra in MUMBAI; Editing by Muralikumar Anantharaman)