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Rattling The Can

Already nervous about the proposed $100 billion-plus merger between two natural resources giants, BHP Billiton and Rio Tinto, China, one of the world’s biggest consumers of the iron ore, aluminum and other minerals that BHP and Rio Tinto dig up, has jumped in with both feet.

Aluminum Corp. of China (Chinalco) and the U.S.’s Alcoa staged a joint dawn raid on Friday to grab 9% of Rio Tinto, paying $14 billion for the stake, a 21% premium on the closing price of Rio Tinto’s shares the previous evening. The purchase is one of the largest overseas investments by a Chinese company and comes just days before a Feb. 6 deadline for BHP to table a formal bid or walk away.

Question is, is this a defensive move in case a BHP bid for Rio Tinto goes ahead, a spoiler, or an offensive move in the event any bid lapses or fails or if Rio Tinto looks for a white knight. Short of a full takeover, Chinalco could simply be trying to put itself in a strong position to negotiate for Rio’s aluminum assets if BHP does buy Rio.

That, indeed, may be its endgame (and explain Alcoa’s presence). For now, though, Chinalco and Alcoa are keeping all options open.

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