Rio¡¯s Chinalco Deal Is ¡®Unattractive¡¯ on Rebound, Liberum Says

Rio Tinto Group¡¯s decision to accept a $19.5 billion investment from Aluminum Corp. of China Ltd. is looking ¡°increasingly unattractive¡± after a rebound in financial and commodity markets, Liberum Capital Ltd. said.

The probability of Rio completing the transaction with Chinalco, as the state-owned company is known, is ¡°below 50 percent¡± because of three ¡°potential deal-breakers,¡± Michael Rawlinson, head of mining and energy at Liberum in London, wrote today in a report. Australian regulators, Rio investors or BHP Billiton Ltd. may spur the world¡¯s third-largest mining company to consider alternative proposals.

¡°It is very clear financial markets and, to a lesser extent commodity markets, have improved massively since the Chinalco deal was announced¡± on Feb. 12. Rawlinson wrote. The deal looks ¡°increasingly unattractive relative to other alternatives,¡± he wrote.

London-based Rio is trying to convince shareholders and regulators that the Chinalco accord, which includes the sale of stakes in some assets and a convertible bond issue, is the best way to slash the company¡¯s $38.9 billion of debt. Rio shares have advanced 54 percent in London trading this year, while the S&P GSCI total return index, covering 24 raw materials, rose 4.5 percent in March, the first monthly gain since June.

Legal & General Group Plc, Rio¡¯s third-largest shareholder with 4.6 percent of the stock, in February called for an alternative proposal that could be considered by all investors. The Association of British Insurers, representing 400 institutional investors, said it was ¡°deeply concerned¡± by the deal.

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