Bid target Rio Tinto is likely to focus on trumpeting its prospects as an independent firm rather than revealing defense tactics as it gives its first detailed response on Monday to an all-share takeover proposal from mining rival BHP Billiton.

Rio, which has said BHP's three-for-one share proposal vastly undervalues the firm, will likely showcase the strength of its own assets during Monday's presentation, analysts said.

I think they're going to focus on their long-term prospects, what the company is capable of doing on its own without BHP and probably say a lot of the synergies can be realized without merging, said a South African fund manager who declined to be named.

BHP has argued a combination of the two companies will lead to $3.7 billion in annual synergies after seven years through cost-cutting and speeding up development of mines.

A major overlapping area is in iron ore, where both firms have operations in Australia's Pilbara region.

They'll tell us how great their part of the iron ore business is and how they're going to push it forward, said John Meyer, head of resources at London investment bank Fairfax IS.

BHP said a major source of synergies would be in iron ore, but Rio Tinto is likely to argue that its operations have more potential.

Australian analyst Tim Gerrard with Austock, who has criticised BHP's offer as unfair to Rio shareholders, says Rio can increase iron ore output by 125 million tonnes per annum (mtpa) over 10 years, much more than BHP.

Under the current proposal Rio shareholders would be sacrificing a net 65 mtpa of global iron ore sales, which at the same EBITDA margin suggested by BHP's proposed Pilbara synergies equates to US$1.4 billion/pa, said Gerrard in a research note.

EBITDA, sometimes called core profit, refers to earnings before interest, tax, depreciation and amortization.

Rio is also likely to outline growth prospects for Canada's Alcan, which Rio recently bought for $38 billion to make it the world's largest producer of aluminum.


Newspaper reports have said Rio is considering a variety of defense strategies to fend off BHP's proposal, which was worth $140 billion before it was announced on November 8, but has fallen in value to $119 billion as BHP shares have slid.

A report in Wall Street Journal last week, citing unnamed sources, said Rio was considering an array of potential options including a counter-bid, also called a Pac-Man defense, selling assets and other moves that could raise shareholder value.

The term Pac-Man defense is a reference to a computer game where attackers can become the attacked.

I wouldn't expect them to put all their defenses on the table when there is no (formal) bid yet, said Graham Birch, fund manager at Blackrock in London.

Another possibility is a so-called poison pill defense, where a company attempts to make its stock less attractive by allowing existing shareholders to buy more shares at a discount.

Although Rio is not likely to spell out tactics at the presentation, investors are hoping that during a question period they can get an idea whether Rio is adamantly opposed to a link-up or whether it is mostly seeking a richer offer.

A poisoned pill wouldn't be their style, although I'm sure they're considering it, but it is possible that Rio's management are thinking about cashing in, Meyer said.

(Reporting by Eric Onstad; Additional reporting by Eleanor Wason in London; Editing by Paul Bolding)