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Rio board and shareholders and the failed deal with Chinalco

Comments on Ross Daniel’s comments on “Australia needs to get its act together on China, and fast”, 9/06/2009, http://www.eastasiaforum.org/2009/06/07/australia-needs-to-get-its-act-together-on-china-and-fast/

I have some sympathy to Ross Daniel's point, although I don't think the deal was uncommercial even when it was first promulgated and the Rio board then acted against the shareholders' interest. Although the value of a company is hard to measure because ever changing environment and internal situations, one could get a clue from its share prices. At the time the deal was conceived, what was the total market capitalisation of Rio and what value was the deal value Rio at? I did not calculate that but that should be an easy matter to do. I suspect that that deal valued Rio much higher than the market capitalisation.

One got to remember is the fact that Rio was having very high debt to equity ratio and the market situation during late last year and early this year was so dangerous that some companies were fighting for their own survival. The deal and the Rio board had to take that into account. Yes, it turned out that the world banking and finance crisis almost subsided now, but back then, the whole system was in danger of collapse and many companies, especially those with high debt would have gone under if the banking crisis was not averted by the unprecedented and concerted efforts by the governments of major large countries/economies.

Individual shareholders may or may not have got the whole and true picture as the board in most of time, unless the board is acting strangely but that is relatively rare. On the other hand, shareholders have every right to be concerned and often get emotional.

Even now it is unclear whether the deal with BHP will bring benefit to Rio or not, given that many major countries are voicing their concerns about the monopolistic nature of the deal. They may devise some scheme to counter any savings and pricing monopoly behaviour that would potentially benefit Rio. Don’t worry about WTO rule, if there are many countries that think it is unfair, they will act and design new rules. The matter of fact is that WTO rules are made by its member countries. They can make them and they can change them.

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