BHP/Rio Tinto

so you think its going to go through?

Who is on the deal? Im curious...

Every top bank except LEH and MER.

There is another major deal in the works in the metals & minning sector right now between CVRD and Xstrata. It would most likely be a be a conflict of interests for any bank to really have a lead advisor role in both deals. I believe that Lehman is advising in the CVRD-Xstrata deal and thus can't really be involved in BHP-Rio. Merrill was advising CVRD, but refused to provide adequate financing to CVRD (seeking $50 billion+ total financing) for the deal so CVRD dropped Merrill. I believe that Merrill has been able to find its way into the BHP-Rio deal.

I believe that MS is advising Rio, and GS is advising BHP both with numerous other banks.

Btw, while a CVRD acquisition of Xstrata would not be as big as a BHP-Rio deal it would still most likely be the 2nd largest deal of the year.

Yea, the Vale-Xstrata deal is $90billion... nothing to sneeze at.

Nonetheless, from what I recall, HSBC, Lehman, and Merrill are advising Vale and JPM Cazenove and DB are advising Xstrata. JPM Cazenove, DB, and HSBC all have roles in the BHP/Rio Tinto deal, so I don't think it's a conflict of interest.

I'm pretty confident the deal will happen because there have been multiple reports that synergies allow for a price over ~$185 billion, current bid is shy of $150 billion. Chinalco's 14% stake isn't enough to block the bid if the bid is attractive enough for the other shareholders. Further, Chinalco has publicly declared that it has no intention of blocking the bid, and would be willing to sell its share "at the right price".

This is a great post. I have been following this deal for a long time and have been wondering why they were not included. It is rare you see something actually related to investment banking now a days here... You also have to wonder where Citi is on the MSFT Yahoo deal. Goldman, Lehman, Morgan and even Blackstone are getting a piece of that action. Guaranteed some MD is getting chewed out somewhere...

sorry, i meant like "b" makes it appear in his post, not y2yankees99

b, I would love to be there when you are sitting across from a Chinese person who says that he is willing to sell whatever it is you badly want to buy from him "at the right price" and you start to bid and bid and bid and bid and ... no synergies dreamed up by even the most deluded banker will ever justify the price that would be "right".

BHP needs to start talking to the Party, if it wants this deal to go through. I have a feeling GS would not be entirely unwilling to oblige.

I understand that the Chinese statement was issued for political reasons (to make it appear as if the gov't isn't attempting to block an multi-mutually beneficial deal); nonetheless, given an exorbitant price (in the ~$180+ billion ballpark I noted earlier) there would be extreme international pressure on the Chinese to sell, regardless of their private interests. Sure, they could refuse, but that would be political suicide. China's economy is still at the point where it is dependent on the rest of the world, and it really can't afford to burn any international ties.

I would be curious to learn what exactly you mean by:

1) "an multi-mutually beneficial deal" 2) "international pressure on the Chinese to sell" - who exactly would be exerting that pressure? (I take it you refer to some form of political pressure) 3) "that would be political suicide" - what repercussions are you envisaging?

1.) I was trying to think of a way to say "beneficial to everyone"... didn't really know how to phrase it (multilaterally beneficial??). Anyway, what I meant was that, given an agreement to the deal, there would be universal support backing it from multiple international factions.

2.) China initially released the statement that they were not buying the 14% stake to block the deal because of negative perceptions regarding the country's actions. Related to your first question, all the parties that stand to gain from such a transaction would be exerting the pressure.

3.) Burning ties could lead to a multitude of repercussions, including, most importantly, economic repercussions. China's economic growth in the past half a decade had been predicated on international trade and has reached a level where it is internally unsustainable. China relies on many international players in order to keep up its double digit growth. Further, the investments that the country has been making (GDP is composed of only ~30% consumption and 70% investment, reverse to that in the States) would derail, given an unexpected slow down of economic growth.

To answer your initial question: Lehman are advising Chinalco, whereas Merrill are still BHP's broker, but obviously are unable to provide any financing. I can only speculate that they are involved in some sort of advisory capacity.

1) & 2) I had no quibble with your syntax, I was curious to learn who exactly were these "multiple international factions" which you mention in your second post but do not explicitly identify. Gimme a couple of names and exactly what forms such "pressure" would plausibly take and I promise I'll get off your case on this one, as this argument is moot unless that 14% stake grows.

3) Here, your answer is either too advanced for my understanding or frightfully non-sensical whilst completely disregarding the question. Always remember the antipathy generated when one side applies any sort of pressure on another.

b, you seem like a smart guy; this is the only reason I am bothering to reply. However, I take exception to verbose, sweeping statements such as "extreme international pressure" and "political suicide". Do not take my chastisement personally, but the fact that the Chinese were smart enough to leave it at 14% for the time being and bring in Alcoa for the ride should tell you something.