Rio Tinto's board has backed Yancoal Australia’s $2.69bn bid for coal assets in Hunter Valley, Australia, rejecting Glencore’s increased offer price.
Glencore and Yancoal have been presenting bids and counterbids this month for the acquisition of the company’s wholly owned subsidiary Coal & Allied Industries (C&A).
The latest offer from Yancoal includes $2.45bn payable in cash on completion of the deal and a new guaranteed, unconditional royalty arrangement worth $240m.
In addition, the proposal comes with a financial assurance of up to $2.1bn provided by Yancoal’s parent company Yankuang Group.
Furthermore, it includes a termination fee of $225m, comprising a cash deposit and an unconditional bank guarantee.
Rio Tinto chief executive J-S Jacques said: “The revised offer from Yancoal of $2.69bn 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."
Glencore recently increased its offer to $2.675bn to be paid in full upon the deal closing, up from its previously offering $2.55bn, while removing the deferred payments model that was part of the previous offer.
In addition, Glencore pledged a $225m deposit, which would be forfeited if the mandatory regulatory approvals were not secured.
According to the board of Rio Tinto, what tipped the balance in favour of Yancoal was the certainty of the transaction, with all regulatory approvals for the deal received.
The board of Rio Tinto favoured Yancoal, taking into consideration the speed of the transaction, with the deal expected to complete during the third quarter of this year.
The general meeting of Rio Tinto, where the shareholder voting will take place, is scheduled this month.
In January, Rio Tinto agreed to sell C&A to Yancoal for $2.05bn.
Image: Hunter Valley Operations. Photo: courtesy of Rio Tinto.