Clash of the titans: Rio Tinto rebuffs informal BHP bid

In response to rampant market rumours, BHP Billiton (BHP-N) is admitting today that it has been approaching Rio Tinto (RTP-N) with an offer for a friendly takeover.

In a release this morning, BHP says that it recently wrote to Rio Tintos board and outlined such a proposal.

While BHP did not elaborate on its offer, it did state the takeover would be at a premium.

Rio Tinto went a couple of steps further in its own release, stating that BHP was offering three BHP Billiton shares for every Rio Tinto share, and that the board had unanimously rejected the offer, in the belief that it significantly undervalues Rio Tinto and its prospects.

BHP, meanwhile, says that it has written again to Rio Tintos board and that it continues to seek an opportunity to meet and discuss its proposal with Rio Tinto.

In early morning trading in New York, Rio Tintos American Depositary Shares (ADS) were up 26% to US$450.90, a rise of US$93.40 from last nights close. BHPs ADSs traded down US$2.97, or 3.7%, to US$77.38.

Anglo American (AAUK-Q) got swept along in the fun, with its unsponsored ADSs shooting up US$5, or 15.4%, to US$37.53 in mid-morning trading.

One Rio Tinto ADS represents four ordinary Rio Tinto plc shares. Each BHP ADS represents two ordinary BHP Billiton Limited shares. One Anglo American ADS on the Nasdaq is worth half a real share.

In mid-morning trading, the market capitalizations stood at: BHP Billiton, US$221 billion; Rio Tinto, US$143 billion; Alcan (AL-T, AL-N) (currently being acquired by Rio Tinto), US$38 billion; Anglo American, US$50 billion; Xstrata (XSRAF-Q, XTL-L), US$67 billion.