updated 2/6/2008 11:52:45 AM ET 2008-02-06T16:52:45

Rio Tinto rejected a sweetened formal offer from mining rival BHP Billiton on Wednesday, saying the all-share offer worth $147.4 billion still did not reflect the value of the company and its prospects for expansion.

Rio Tinto, which had already rejected an initial approach from BHP Billiton last year as too low, said its boards were unanimous in turning away an offer that would create the dominant global player in iron ore.

"BHP Billiton's offers, while improved, still fail to recognize the underlying value of Rio Tinto's quality assets and prospects," said Rio Tinto Chairman Paul Skinner. "Our plans are unchanged, and will remain so unless a proposal is made that fully reflects the value of Rio Tinto."

BHP Billiton is already the world's largest diversified mining company, and Rio Tinto is the third-largest. Analysts say that if the deal succeeds it would be the biggest takeover in the mining sector and one of the biggest ever in the corporate world.

Steelmakers in China, Japan and Europe have protested BHP Billiton's bid, contending that a takeover would give it too much influence over global iron ore supplies and pricing. BHP Billiton accounts for around 15 percent of world iron ore sales, while Rio Tinto is responsible for 24 percent, which would put the combined company at 39 percent.

BHP Billiton — which also reported a 2.4 percent drop in six-month net profit on Wednesday — is offering 3.4 of its shares for every one Rio Tinto share, an increase from the initial informal proposal of three-for-one, the Melbourne-based company said. The offer applies to both Australian-listed Rio Tinto Ltd. and British-listed Rio Tinto PLC.

The proposed deal would deliver efficiency benefits worth $3.7 billion a year and raise the value of shareholdings in both companies, BHP Billiton Chief Executive Marius Kloppers said.

"I believe there is widespread support for the compelling logic of the proposal to combine the companies," Kloppers said in Sydney earlier in the day.

BHP's offer came just hours before a deadline set by the British takeover regulator for the company to formalize its bid or walk away from the deal for six months.

Under the current terms, Rio Tinto would hold 44 percent of the new company — more than the 36 percent of the merged group BHP Billiton made in its earlier offer.

Analysts had thought that BHP Billiton's new offer would be more attractive to Rio Tinto, but might still not be enough to secure the deal.

BHP Billiton valued its latest offer at $147.4 billion using Monday's closing share price. The theoretical value of the all-share swap changes daily, and is further complicated because BHP Billiton and Rio Tinto are both listed separately in Sydney and London.

Rio Tinto's shares fell 0.6 percent to 5,399 pence ($106.37) in London, where BHP Billiton sank 4.6 percent to 1,524 pence ($30.02).

BHP Billiton is likely to discuss its sweetened offer with Aluminum Corp. of China, and Alcoa Inc., which last week bought a 12 percent stake in Rio Tinto's London-listed stock, which equated to a 9 percent stake in the whole group. "At some stage, we're likely to have a discussion," Kloppers told a conference call, though he also said BHP Billiton could proceed with its offer without the support of the new stake holders.

The purchase by state-owned Aluminum Corp. of China, known as Chinalco, and Pittsburgh-based Alcoa followed rumors that some Chinese entity might try to block BHP Billiton's bid.

Chinalco President Xiao Yaqing said this week his company and Alcoa had no intention of raising their stake in Rio Tinto, though they reserved the right to participate in a takeover offer within the next six months.

He suggested Chinalco might be prepared to sell its stake in Rio Tinto as part of a BHP bid "if the return is attractive."

Earlier Wednesday, Alcoa and Chinalco said through Singapore-based Shining Prospect that they would "closely monitor" bid developments, in particular any response from the board of Rio Tinto. Shares in Chalco, the Hong Kong-listed unit of Chinalco, fell 6.5 percent to 12.40 Hong Kong dollars ($1.59) on Wednesday.

BHP Billiton said it had already secured a committed bank financing facility of $55 billion for the deal.

The deal would be subject to regulatory approvals in Australia, the United States, Europe and elsewhere, and to 50 percent shareholder approval, Kloppers said. He said the company believed regulatory clearances could be achieved within nine months.

If the offer is successful, BHP Billiton said it will return up to $30 billion to shareholders through a share buyback within 12 months of completing the acquisition.

Earlier Wednesday, BHP posted a net profit of $6.02 billion in the six months ended Dec. 31, down 2.4 percent from $6.2 billion a year earlier because of moderating global growth.

Net profit before one-time items was $6.0 billion, compared with consensus forecasts of $6.1 billion. Underlying earnings before interest and tax for the first half was $9.62 billion, just above analyst consensus of $9.5 billion.

Revenue for the half-year rose 16 percent to $25.54 billion from $22.1 billion in the same period a year earlier.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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