The "Microsoft" of Miners about to acquire the "Yahoo" of mining

From Forbes.com:

LONDON -
"As you might have expected given last week's bid expectations for Canadian steel maker Alcan, other companies in the metals and mining sector have now found themselves the subject of takeover talk. Analysts at Merrill Lynch recently suggested that BHP Billiton, the world's largest mining stock, could be an attractive target for private-equity interests, but now forecasters at Citigroup think the company would be better off just buying Rio Tinto, its nearest rival.

It might seem a little far fetched given the fact that Rio has a market capitalization of $80 billion, while BHP is worth $136 billion. But investors seemed to be hoping there was some truth the speculation, and sent Rio up 204 pence ($4.07), or 6.1%, to £35.08 ($69.93), in Wednesday afternoon trading in London. BHP was up 24 pence (48 cents), or 2.0%, at £12.09 ($24.10). It wouldn't quite be the biggest takeover of all time -- that distinction goes to AOL for buying Time Warner in 2000 for $165 billion -- but it would probably come a close second.

"Rio Tinto's strong cashflow and nominal gearing may bring it into the crosshairs of private equity, but we think BHP Billiton is a much more likely bidder given synergies and nationalistic control issue of Australian assets," Citigroup's Clarke Wilkins wrote in a research note earlier this week.

Considering Rio Tinto's sheer size, a bid at even a modest premium would need to be around $100 billion or more, and that would leave the only other miners that might conceivably buy it -- Anglo American and Xstrata, which have market values of $80 billion and $50 billion, respectively -- saddled with debt. BHP, on the other hand, has reported a hefty cashflow from operating activities of $10.5 billion for the year to June 30, 2006, and even promised shareholders it would add a massive $10 billion to its share buyback program in February.

A bid from BHP Billiton also looks compelling, Wilkins said, because of the synergies that could be achieved between it and Rio through their existing joint ventures. BHP's dual listing on the Australian and London stock exchanges, along with its being partly based in Australia, would also stand it in good stead with the Australian government since a takeover of Rio would see it gain control of the company's huge iron ore operations in Pilbara, Western Australia. Rio derives about 40% of its earnings from its mines there. "

I first received word of this from The Posse List, who had sent out an email to their DC listerv today. If you are a contract attorney anywhere in America you would be foolish not to sign up with The Posse List listservs. Their information on jobs and the market in general is pretty remarkable.