BHP Billiton Ltd/Plc mapped out its plan on Monday to acquire rival Rio Tinto Ltd/Plc, promising to hand $30 billion to shareholders via a share buyback if the deal goes through and signaling it was ready for a long fight.

BHP's new chief executive, Marius Kloppers, said he would step up the pressure to draw Rio's board into talks by pitching BHP's $140 billion takeover proposal to major Rio shareholders, more than two-thirds of whom also own BHP stock.

The process will start now, Kloppers, who has been CEO for six weeks, told a media telephone conference, adding that as no formal offer has been launched there was no need for BHP to consider going hostile.

BHP has so far failed to persuade Rio's board to discuss its three-for-one all-scrip proposal aimed at assembling a mega force in mining of everything from iron ore and manganese to copper and diamonds.

Our focus is on the proposal that is on the table ... We will be very patient to get this message out, Kloppers said.

A Rio spokesman said there was nothing new in a nine-page document issued by BHP outlining its vision for a combined company. The proposal, already rejected by Rio's board as too low, remained well out of the ballpark, the spokesman said.

It looks like BHP may have to up the ante a bit, said Eric Betts, equities strategist at Nomura Australia. It could take a while for this thing to play out.

Kloppers said a merger with Rio could mean $3.7 billion in annual savings after seven years through synergies in iron ore, coal and other activities. He gave no timeframe for the proposed share buyback.

The savings would mostly be through higher production runs and efficiencies of scale, which would also help buffer cyclical downswings in commodities markets.


BHP, the world's biggest mining house, vowed to maintain a progressive dividend policy post-merger, reassuring investor concern that there could be little cash left for future dividends.

Analysts are divided on whether Rio's board is looking for a cash-or-scrip-sweetened alternative proposal from BHP, or wants to keep BHP at bay altogether.

Sources have said Rio's board is open to a higher BHP approach, especially if it involves a cash component.

It seems they (Rio) are open to a bid but they just think the price is too low ... (BHP) are wanting to have a conversation with them to talk about the bid, talk about the synergies, talk about the rationale, one source said.

Under the proposal, Rio shareholders would hold 41 percent of the combined company.

Last Thursday, Rio rejected BHP's offer, pitched at a premium of about 14 percent to Rio's Australian share price at the time, as too cheap. Rio itself was forced this year to pay a 65 percent premium for Canada's Alcan Inc at a cost of $38 billion, paid for with debt.

BHP has already dispatched advisers Citigroup (NYSE:C) and Goldman Sachs (NYSE:GS) to arrange $70 billion in debt refinancing with a small number of banks to help pay for a takeover.

A personal pitch by Kloppers to big Rio shareholders could be easier given so many Rio Tinto shareholders hold BHP stock.

The value we will create will essentially be for people who already own both shares, and merely will hold something that in the future will be worth more than the two pieces of paper they hold at the moment, he said.

Kloppers, who said a merged BHP/Rio would be headquartered in Melbourne, dismissed talk that BHP could sell its oil and gas business to help pay for Rio.

No, there are no plans to sell petroleum, Kloppers said.

BHP, the one-time Big Australian that now operates in 25 countries, said that after a thorough analysis of the proposal's anti-trust implications it saw no significant barriers from regulators, though it reckoned it could take up to a year to win the necessary approvals.

Kloppers said talks had already been started with anti-trust regulators in Australia and Europe, and he saw no need at this stage to jettison any of either company's assets.

The concentration of the iron ore market under a combined group is one issue that may draw competition concerns, particularly from Chinese steel mills which buy tens of millions of tonnes each year from both BHP and Rio.

A combined BHP/Rio would hold 27 percent of the world market for iron ore, according to BHP.

(Editing by Ian Geoghegan)