05/06/2008 - 16:56

Rio pays $100,000 fine

05/06/2008 - 16:56

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Rio Tinto Ltd has paid a $100,000 fine to the Australian Securities and Investment Commission after it alleged the major had failed to adhere to disclosure provisions in its $US38.1 billion acquisition of Alcan Inc

Rio Tinto Ltd has paid a $100,000 fine to the Australian Securities and Investment Commission after it alleged the major had failed to adhere to disclosure provisions in its $US38.1 billion acquisition of Alcan Inc.

 

A copy of the ASIC statement is pasted below:

Rio Tinto Limited (Rio Tinto) has today paid a $100,000 penalty after ASIC served an infringement notice alleging the company had failed to comply with the continuous disclosure provisions of the Corporations Act 2001 (the Act) and relevant provisions of the ASX Listing Rules in relation to its US$38.1 billion acquisition of Alcan Inc (Alcan) in 2007.

Rio Tinto agreed to pay the fine following the issue of an infringement notice by ASIC on 10 April 2008. This notice alleges that the company failed to comply with the continuous disclosure provisions by not immediately notifying the Australian Securities Exchange (ASX) of certain information about the acquisition.

ASIC believes that by 2.30pm (AEST) on 12 July 2007, Rio Tinto was aware of the following information:

Rio Tinto had made an offer to acquire all of Alcan's outstanding common shares for US$101 per common share that valued Alcan common shares at US$38.1 billion; and
the Alcan Board had agreed to unanimously recommend acceptance of Rio Tinto's offer to Alcan shareholders, subject to the finalisation of a number of legal issues (the Information).

ASIC believes that from 2.30pm, the Information ceased to be confidential upon the publication of an article by Dow Jones Newswires which reported as follows:

'Rio Tinto was last night in the closing stages of a deal to purchase Canadian aluminium giant Alcan Inc. to help the Canadian aluminium giant stave off a hostile bid from Alcoa Inc., according to people familiar with the transaction.
A final deal should be announced early today, these people said, and was expected to carry an all-cash price tag approaching $100 a share, valuing the deal at about $37 billion.'

Under the Act, Rio Tinto was required to notify ASX of the Information immediately upon it ceasing to be confidential.

At approximately 3.40pm, Rio Tinto requested a trading halt in respect of its ASX listed securities. This trading halt was applied at 3.42pm and an announcement was made to ASX concerning the Information at approximately 4.00pm.

Rio Tinto has elected to comply with the infringement notice. As provided by the Act, compliance with the notice is not an admission of guilt or liability, and Rio Tinto is not regarded as having contravened subsection 674(2) of the Act (Obligation of an entity to provide information to market operator).

A summary of the notice is attached.

Further information about ASIC's administration of infringement notices is available at http://www.asic.gov.au/clerp9, under 'continuous disclosure'.

SUMMARY OF THE INFRINGEMENT NOTICE

Between October 2006 and July 2007, Rio Tinto and Alcan Inc (Alcan) had discussions about the possibility of combining Alcan's and Rio Tinto's aluminium businesses, culminating in Alcan advising Rio Tinto as follows:

'...meetings of the board of directors of [Alcan] and its committees would take place on July 11, 2007 to consider proposals involving Alcan and that any proposal should be submitted and considered best and final by the end of the day of July 10, 2007'.

On or about 10 July 2007, Rio Tinto sent a letter (Offer Letter) to Alcan in which it set out an offer to acquire all of the ordinary common shares in Alcan (the Offer). The Offer Letter stated:

'This proposal will lapse at 5 pm (Montreal time) on Wednesday 11 July 2007, unless the Alcan Board has indicated to us before that time it intends to unanimously recommend our proposal, determine that our proposal meets the requirements of the Continuity Agreement, sign the Support Agreement and publicly announce our offer on Thursday, 12 July 2007.

...Rio Tinto proposes to offer US$101.00 per share (fully diluted) in cash for the entire issued common share capital of Alcan.

...this proposal values the fully diluted common share capital of Alcan at U$38.1 billion.

...This offer is fully financed (see enclosed Proof of Financing).'

Rio Tinto enclosed with the Offer Letter a copy of the draft Support Agreement between Rio Tinto and Alcan and a draft announcement about the Offer.

In the early morning of 12 July 20071 , the board of directors of Alcan met in Montreal to discuss other offers it had received.

On the morning of 12 July 2007 Alcan notified Rio Tinto that Rio Tinto was the preferred bidder for Alcan, subject to final negotiation and agreement on documentation (the Acceptance).
Rio Tinto's board of directors were notified of the Acceptance at 8.07 am on 12 July 2007.

By reason of the foregoing, Rio Tinto was aware of the following information:

Rio Tinto had made an offer to acquire all of Alcan's outstanding common shares for US$101 per common share that valued Alcan common shares at US$38.1 billion; and
the Alcan Board had agreed to unanimously recommend acceptance of Rio Tinto's offer to Alcan shareholders, subject to the finalisation of a number of legal issues (the Information).

At about 2.30 pm on 12 July 2007, Dow Jones Newswires published an article titled, 'Rio Tinto Nears Deal to Acquire Alcan of Canada' (the Dow Jones Article). The Dow Jones Article stated:

'Rio Tinto was last night in the closing stages of a deal to purchase Canadian aluminium giant Alcan Inc. to help the Canadian aluminium giant stave off a hostile bid from Alcoa Inc., according to people familiar with the transaction.

A final deal should be announced early today, these people said, and was expected to carry an all-cash price tag approaching $100 a share, valuing the deal at about $37 billion.'

The Dow Jones Article referred to the Offer and, ASIC believes, provided reasonably specific and accurate details in relation to it. Consequently, from 2.30pm on 12 July 2007, the Information ceased to be confidential for the purposes of ASX Listing Rule 3.1.A.2.

At 2.41 pm on 12 July 2007, Dow Jones Newswires published a second article titled, 'Rio Tinto Close to US$37B Alcan Deal', and at 2.46 pm, Reuters published an article titled 'Rio Tinto near deal to buy Alcan'. Both of these articles contained similar information to the Dow Jones Article.

At about 3.00 pm on 12 July 2007, ASX contacted Rio Tinto in relation to firm speculation about Rio Tinto making a bid for Alcan. Rio Tinto advised ASX that it would consider its position and call ASX back.

At about 3.38 pm on 12 July 2007, Rio Tinto telephoned ASX and requested an immediate trading halt, pending an announcement. At 3.41 pm on 12 July 2007, Rio Tinto formally requested an immediate trading halt pending the making of an announcement to the market regarding a potential transaction. At about 4.00 pm on 12 July 2007, Rio Tinto notified ASX of the Offer and the Acceptance (the ASX Announcement).

The ASX announcement was released by ASX to the market at 4.30 pm on 12 July 2007.

Between 2.30pm on 12 July 2007 (being the time of the publication of the Dow Jones Article) and 3.41pm on 12 July 2007, 725,624 Rio Tinto shares were traded (representing 37.6% of the volume of the day's trading) and the value of the shares traded in that period was $64,899,964 (representing 35.3% of the value of the day's trading).

The Contravention

This Infringement Notice has been issued because ASIC believes Rio Tinto contravened subsection 674(2) of the Act in the period from 2.30 pm on 12 July 2007 (at which time the Dow Jones Article was published and by which time Rio Tinto was aware of the Information) and 3.42 pm on 12 July 2007 (by which time trading in Rio Tinto shares on ASX had been halted) in that:

(a) Rio Tinto is an entity to which subsection 674(2) of the Act applies.

(b) by 2.30 pm on 12 July 2007, Rio Tinto was aware of the Information.

(c) the Information was information that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of securities of Rio Tinto, because:

the merger anticipated by the Offer would create a global leader in the aluminium industry and was expected to be value enhancing to the shareholders, be earnings and cash flow per share accretive and result in post tax synergies of $600 million per year.
the price per Alcan common share specified in the Offer was a large premium on the share price of Alcan (i.e. the average closing price of Alcan common shares on the New York Stock Exchange for the 30 trading days ending 4 May 2007 was $55.36).
(d) From 2.30 pm on 12 July 2007, ASX Listing Rule 3.1A (the exception to ASX Listing Rule 3.1) no longer applied to the Information because the Information ceased to be confidential and, in view of the speculation about the Offer in the Dow Jones Article and in the absence of an immediate request by Rio Tinto for a trading halt under ASX Listing Rule 16.4.2, a reasonable person would have expected the Information to be disclosed to ASX.

(e) Consequently, from 2.30 pm on 12 July 2007, ASX Listing rule 3.1 required Rio Tinto to tell ASX of the Information.

(f) Between 2.30 pm and 3.42 pm on 12 July 2007, the Information was not generally available.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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