M&A: Chinalco, Rio Tinto & BHP Billiton

You must have read many materials about the potentially "hostile" takeover of Rio Tinto by BHP, the sudden acquisition of up to 14.9% in Rio Tinto by China's state-owned aluminium giant, Chinalco, with US partner Alcoa, and "rumors" about the anti-trust issues, potential objections from Australia, China or Japan to the merger and the defensive tactics to thwart such takeover, etc. I think it will take a considerable time for these questions to settle and would like to express some thoughts and questions about the current development. But before doing this, please note that I hold shares in BHP (ADR).

Why did Chinalco join Alcoa in its acquisition?

The joint acquisition of a substantial stake in RIO by the two biggest alumimium companies in China and US sounds strange to me. Certain explanations are found in the Memo filed at ASX but I still don't understand why. Funding the acquisition should not be a problem to these giants particularly Chinalco. We know very well the huge reserves that China has and the Central Government's unequivocal policy to support Chinese companies to go outside of China to invest overseas. So why does Chinalco join in US Alcoa? Surprised that none of the reviews I got has raised this question. It seems everyone is taking the acquisition as a pure Chinese purchase but the facts released are different. Alcoa will have or share a significant stake too.

Will Chinalco & Alcoa get shares in BHP through RIO's acquisition?

On the face of it, once Chinalco and Alcoa fix their acquisition of 14.8% in Rio Tinto, the potential takeover by BHP should extend to these two significant parties. The proposed offer from BHP comprises shares in BHP and I have no doubt that, if such offer is acceptable, Chinalco and Alcoa will then hold a significant interest in BHP. So, eventually, is the joint purchase of 14.9% in Rio Tinto going to be an (indirect) acquisition in BHP? If so, I think I should be buying more shares in BHP instead.

Anti-trust questions

The picture looks quite complicated. Many parties are involved: Chinalco, US Alcoa, Australian/UK Rio Tinto and BHP, and potential parties like Japan, India, etc. So how many issues of ant-trust are here? What about concerns with national interests or security? Are there problems with China and US acquiring significant stakes in Rio Tinto or indirectly BHP? Are there problems with the basically conflicting relationships between buyers and sellers among these parties? Who can succed to takeover Rio Tinto? BHP, Chinalco or US Alcoa or all of them jointly or some other parties? Ultimately, who will be the real winners? Remember you can win by "divide and rule".

Let's see how this exciting saga will develop. I am sure we still have many epsiodes to come!