Saturday, December 1, 2007

Our Rio Tinto Shares Jump 10%... Could Could Rio Tinto See a 60% Jump?

The beautiful courtship of Rio Tinto is in full swing... And if BHP Billiton Chief Marius Kloppers has his way, this will end in the biggest merger in this history of the commodity industry.

Since we added Rio to the Green Investments portfolio last week, the stock has rallied nearly 10%.

That's an enormous short-term jump for a global resources behemoth - especially one with a $150 billion market cap.

Two things are going on here.

One, in a bid to keep shareholders from going for the offer too easily, Rio CEO Tom Albanese is flaunting his companies strong numbers, and profitability. He's also talking about increasing dividends. All of this has the effect of raising the company's perceived value on the world stage, which is good for our shares.

Two, that doens't mean a deal won't go through...

The good news is that many analysts don't see this as a bid to stop a merger at all costs. But rather, this could be the beginnings of the negotiation process. Even through Kloppers and Albanese have not begun talking officially, they have begun the mating dance in the public square.

Already Rio shares are trading at a 10% premium over the offer from BHP. That signals that investors think a sweeter offer is on the way from Kloppers and Company.

In fact, one analyst believes BHP will have to offer a 60% premium to lock up this history-making deal.

We're far, far from ANYTHING happening here, let along an offer that sweet... and that Albanese and his shareholders find acceptable.

Could BHP Offer $200-Plus Billion?

But it's possible that Rio would benefit greatly from either scenario: a merger could make the shares worth 60% more for us... That would require an all-share offer from BHP at levels exceeding $200 billion.

On the other hand, a non-merger would bring every positive aspect of the company sharply into public focus, making their perceived value higher and possibly driving shares upward that way.

Stick around. This is going to be an interesting story to watch... And possibly profitable for us green investors.

Good day,


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