The RIO takeover by BHP (3 BHP shares for every 1 RIO share) certainly put a rocket under the RIO shares price - up by around 30% since the offer was announced. It looks as though both sides think this is a good idea (and China thinks it's a really bad idea), but that RIO will hold out for a slightly sweeter deal - perhaps some cash in addition to the shares. I currently own 60 RIO shares so the takeover offer gave me a nice "paper profit" of around $1,800 and, if the takeover goes through there won't be any immediate capital gains tax due if the deal remains a stock swap. I'll probably hold onto this stock for the medium term as the merged company would be in the global top 10 in terms of size, and would have huge marketing power in terms of global iron ore production. With the global commodities boom looking to continue for a while yet, this would translate to higher negotiated ore prices and a significantly increased profit.
Copyright Enough Wealth 2007