Rio Tinto Agrees to Sell C&A to Yancoal

Rio Tinto’s Kestrel mine (above) in Queensland is one of several coal operations Yancoal will
acquire in the Coal & Allied transaction.
After receiving a competitive bid from Glencore and a counter offer from Yancoal, Rio Tinto has ultimately decided to sell its wholly-owned subsidiary Coal and Allied Industries Ltd. to Yancoal. Rio Tinto said it felt Yancoal Australia Ltd.’s offer of $2.69 billion had a higher level of completion certainty. The sale is still contingent on a vote by the company’s shareholders.

The recommendation follows consideration by the board of a revised offer from Glencore plc received on June 23, and a revised offer from Yancoal received on June 25 comprising further improved terms. Yancoal’s most recent offer includes total consideration of $2.69 billion, comprising $2.45 billion in cash payable in full on completion, as well as $240 million via unconditional guaranteed royalty payments of which $200 million will be received before the end of 2018. It also includes an increased break fee amount provided by Yancoal’s parent company, Yankuang, from $100 million to $225 million and the receipt or waiver of all regulatory approvals required to close the transaction.

The board considered both of the latest offers and recommended Yancoal’s improved offer to its shareholders based on greater transaction certainty and higher net present value. In detail, the Yancoal offer has a faster and more certain timetable, with the deal expected to complete during the third quarter of 2017, whereas any transaction with Glencore is unlikely to complete until the first half of 2018 at the earliest. Given the uncertainty of receipt of certain cash flows under Glencore’s revised terms, the Yancoal offer presents greater net present value, Rio Tinto said.

“The revised offer from Yancoal of $2.69 billion offers compelling value to our shareholders for our Australian thermal coal assets,” said Rio Tinto Chief Executive J-S Jacques. “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.”

Rio Tinto initially agreed to sell C&A to Yancoal on January 24, which included $1.95 billion cash, payable at completion plus a coal price-linked royalty; and $500 million in aggregate deferred cash payments, payable as annual instalments of $100 million over five years following completion.

On June 9, Glencore submitted a proposal to acquire C&A for $2.55 billion comprising. Then on June 20, Rio Tinto announced it had agreed to improved terms for the sale of C&A to Yancoal for $2.45 billion cash payable at completion. On June 23, Glencore submitted a revised proposal for $2.675 billion cash payable at completion; the greater of post-tax cash flows of C&A and $25 million net of tax per month between September 1, 2017, and March 31, 2018, subject to a number of significant qualifications and exceptions; and a coal price-linked royalty. The offer was subject to regulatory approvals from Australia, China, Korea and Taiwan.

As featured in Womp 2017 Vol 07 -