BHP Billiton's Rio Tinto offer will give BHP a 90% share of Chile's Escondita copper mine, the world's largest

Nov. 8 (Bloomberg) -- BHP Billiton Ltd., the world's biggest mining company, plans to pursue a takeover of Rio Tinto Group after an earlier approach was rejected, in what may become the largest acquisition in history.

A purchase of Rio Tinto, which has a market value of $165 billion, would create a company that controls more than a third of the iron-ore market, supplies the most energy coal and copper, and owns mines and oilfields in six continents. Rio is the third-largest miner behind BHP and Anglo American Plc.

``If the name of the game at the moment is resources in the ground, then why pussyfoot with junior or medium-size miners when you can go to the top?'' said Stephen Pope, chief global market strategist at Cantor Fitzgerald Europe in London. ``This deal will happen, it's just a question of time.''

Rio stock jumped as much as 32 percent in London trading as the company rejected BHP's offer of three shares for each one in Rio. BHP, based in Melbourne and led by Chief Executive Officer Marius Kloppers, said in a statement to the Regulatory News Service it ``recently'' wrote to Rio's board with the outline plan. BHP shares in London slipped as much as 4 percent.

``It significantly undervalues Rio Tinto and its prospects,'' Rio, which has a dual listing in London and Sydney, said in a separate statement. ``The boards have unanimously rejected the proposal as not being in the best interests of shareholders.''

Stock Climbs

Rio Tinto shares rose as high as 5,740 pence, a record, and traded up 23 percent at 5,372 pence as of 2:40 p.m. in London.

A successful bid may eclipse the two biggest takeovers -- America Online Inc.'s purchase of Time Warner Inc., and Vodafone AirTouch Plc's acquisition of Mannesmann AG. For all of 2006, there were 1,145 deals in the mining industry, valued at $176.5 billion.

The combination would raise antitrust issues, particularly in the iron-ore market, said Charles Bailey, an analyst at Brewin Dolphin Securities in London. BHP, Rio and Brazil's Cia. Vale do Rio Doce control about 80 percent of the seaborne trade in the ore.

Rio, the world's second-largest iron-ore exporter after Vale, may now decide it's better to try to combine with its Brazilian rival, according to Ian Henderson at JP Morgan Asset Management in London.

Vale Partner?

``I can't conceive a competing bid from another company coming through,'' Henderson, who manages $7 billion in natural- resource assets, said in a phone interview. ``Rio and Cia. Vale do Rio Doce may throw their arms around one another instead.''

Vale spokesman Fernando Thompson declined to comment.

The offer sparked a rally in mining shares. The only stock in the nine-member Bloomberg Europe Metals and Mining Index to decline so far today is BHP. Anglo American rose 12 percent, Xstrata Plc climbed 11 percent and Lonmin Plc added 8 percent.

``The bid proves that the consolidation in the mining industry is far from over,'' Christer Fredriksson, an analyst at ABG Sundal Collier in Stockholm, said in a note to investors.

A combination of BHP and Rio would include assets such as a stake in Chile's Escondida, the world's largest copper mine(Rio Tinto owns 30%), and the world's second-biggest uranium producer in Australia. The company also would have assets in aluminum, diamonds, silver, lead and nickel.

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