India's Government Plans Hostile Riversdale Bid to Challenge Rio's Offer

India’s government is planning to make an unsolicited bid to counter a A$3.9 billion ($3.9 billion) offer from Rio Tinto Group for Riversdale Mining Ltd.

International Coal Ventures Ltd., a group of Indian state- run metal and energy companies, hired Citigroup Inc. yesterday to study a possible counterbid for the Sydney-based coal company with mines in Mozambique, the venture’s Chairman C.S. Verma said yesterday. London-based Rio yesterday bid A$16 a share, securing 14.9 percent of Riversdale in pre-bid agreements.

Indian companies are seeking coal mines overseas to secure raw material supplies for steel and electricity. Brazil’s Vale SA or Eurasian Natural Resources Corp. may also bid, according to Sanford C. Bernstein & Co. Tata Steel Ltd., Riversdale’s biggest shareholder, said it will consider Rio’s offer “in the context of other alternatives” available.

“Financially International Coal Ventures looks strong as it has the backing of cash-rich promoters,” Navin Vohra, a partner at Ernst & Young India Ltd. said by phone from New Delhi. “However, the tag of being state-owned and unsuccessful in securing mining assets so far may weigh on its chances.”

Coal India Ltd., world’s largest producer, and Steel Authority of India Ltd., the nation’s second-largest, own about 28 percent each in International Coal Ventures. NTPC Ltd., India’s biggest power generator, NMDC Ltd., the nation’s biggest iron-ore producer, and steelmaker Rashtriya Ispat Nigam Ltd. hold about 14 percent each.

Riversdale stock climbed 0.8 percent to A$16.70 at the close of trading on the Australian stock exchange. That’s 5.6 percent more than Rio’s offer, which was recommended by all of Riversdale’s board, barring the director appointed by Tata Steel. Rio fell 1 percent to A$86.36.

Shareholder Support

A successful bid for control will need the support of at least one of Riversdale’s major shareholders, with the top-three investors owning about 51 percent. These shareholders, Tata Steel, Passport Capital LLC and Cia. Siderurgica Nacional SA, were kept informed during the talks with Rio and haven’t raised any objections, Riversdale Managing Director Steve Mallyon said in a phone interview yesterday.

“The A$16 cash offer is unlikely to secure acceptance from all of Riversdale’s shareholders,” analysts led by Hayden Bairstow at CLSA Asia-Pacific Markets, said yesterday in a report, raising his price target for Riversdale by 3 percent to A$18. Riversdale’s “Benga and Zambeze coal projects are world class and we believe other suitors may show an interest in Riversdale now a formal bid has been tabled,” he said.

Counter Bid

A counter bidder may have to pay as much as A$20.80 a share, Commonwealth Bank of Australia analysts led by Tomas Vasquez said in a report.

Riversdale hasn’t had approaches from any other company, Riversdale’s Mallyon said. Citigroup will submit its report in two weeks, Verma told reporters in New Delhi yesterday after a board meeting. ICVL hasn’t discussed Riversdale with Tata Steel, he said.

“The investment in the Benga project is strategic for Tata Steel, not the financial investment in the company,” said Giriraj Daga, an analyst who has a “buy” rating on the stock at Nirmal Bang Securities Ltd. in Mumbai. “Any decision to sell stake in the company will help Tata Steel’s balance sheet as well as its share price.”

China’s Wuhan Iron & Steel Corp. “could also show interest,” since Riversdale yesterday terminated a potential $800 million investment deal with the steelmaker, Dominic Kane, an analyst at Liberum Capital Ltd., said yesterday in a report.