Rio Tinto confirms Yancoal as preferred Coal & Allied buyer for $2.69 billion, snubs Glencore

Rio Tinto confirms Yancoal as preferred Coal & Allied buyer for $2.69 billion, snubs Glencore

Rio Tinto has confirmed Yancoal as the preferred buyer of its Coal & Allied subsidiary in Australia after an improved offer of US$2.69 billion following Glencore’s counterbid on Friday.

The proposal includes $2.45 billion in cash payable in full on completion and $240 million via unconditional guaranteed royalty payments of which $200 million will be paid before the end of 2018. As well as a further $100-225 million as an increased break fee provided by Yancoal’s parent company Yankuang.

Glencore made an improved counter offer of $2.65 billion last week outlining little regulatory risk and full payment on completion.

However, Rio Tinto’s board is recommending the sale to Yancoal on the basis of greater transaction certainty and higher net present value in the deal.

Rio Tinto chief executive J-S Jacques said: “The revised offer from Yancoal of $2.69 billion offers compelling value to our shareholders for our Australian thermal coal assets.

“This sale process has been in progress for a long period of time and we believe it is in the best interests of our shareholders to take the greater certainty of Yancoal’s strong proposal.”

In addition to the finance assurance of up to $2.1 billion provided by Yangkuang as well as Yancoal’s own financial capability, the board also cited the timeframe for completing the deal as a factor.

A company statement said: “[Yancoal’s offer has] a faster and more certain timetable, with the deal expected to complete during the third quarter of 2017, whereas any transaction with Glencore is unlikely to complete until the first half of 2018 at the earliest.”

The bidding war between the Chinese and Swiss companies started in January 2017 when YAncoal agreed to acquire Coal & Allied for $2.45 billion.

Glencore then came in with a new bid in early June, offering $2.55 billion in total. However, Rio Tinto confirmed it had agreed an improved deal with Yancoal on June 20 of $2.45 billion plus a coal price-linked royalty.

Then three days later Glencore submitted an improved counter proposal of $2.65 billion, a minimum $25 million monthly payment for six months as well as a coal price-linked royalty – subject to regulatory approvals from Australia, China, Korea and Taiwan.

But it appears Yancoal has won the war for now with its total $2.69 billion bid plus a further coal price-linked royalty capped at $410 million.