Mining giant readies cash bid for WMC

Global miner BHP Billiton has started talks to buy uranium and copper company WMC Resources for about A$9.2 billion ($9.9 billion), topping a hostile A$8.2 billion offer by Swiss-based Xstrata.

Analysts said the move by BHP Billiton could draw out a higher offer for WMC, which controls 38 per cent of the world's known uranium at its Olympic Dam mine in southern Australia and is the world's No 5 nickel producer.

"WMC is a prized asset which hasn't been managed to its full potential over the last few years," said Paul Xiradis, managing director of fund manager Ausbil Dexia, which has stakes in both WMC and BHP Billiton.

"There's a lot of value to be had by an acquirer," he said.

BHP Billiton began talks with WMC after approaching fund managers overnight with an offer of A$7.85 per share, aimed at building a strategic stake.

The world's biggest miner said it had not bought any WMC shares, but held options over 4.3 per cent of WMC and had started talks on the possibility of an all-cash offer.

Some fund managers said they were reluctant to sell into the initial BHP Billiton offer when it appeared the takeover battle was hotting up.

"We think that both BHP and Rio [Tinto] could bid up to A$8 and that makes pretty good economic sense," said Peter Harris, an analyst at Commonwealth Securities. "Rio needs WMC more than BHP which is why we are pretty confident that Rio will join the fray."

BHP Billiton shares fell 44Ac to A$18.85, while WMC shares were on a trading halt after closing at A$7.46 on Monday, holding well above Xstrata's A$7 a share bid.

"WMC Resources has confirmed this morning that it is in discussions with BHP Billiton regarding the possibility of an all-cash offer for the entire issued share capital of WMC," the company said in a statement to the Australian Stock Exchange.

BHP Billiton said in London on Monday it had appointed Deutsche Bank to assess the feasibility of acquiring a WMC stake.

Xstrata last week dropped all conditions on its bid, including a requirement to win 90 per cent of WMC shares, putting pressure on any potential rivals.

Sources in London said BHP Billiton had overnight been seeking to build up a stake of 10.1 per cent at a price of about A$7.85 a share, compared with Xstrata's A$7.00 a share bid. A full takeover bid by BHP Billiton at A$7.85 a share would value WMC at A$9.2 billion, about 12 per cent above London-listed Xstrata's offer.

Xstrata's bid closes on March 24 and the company has said its bid is final - unless trumped by a higher offer.

- REUTERS