Analysts say BHP may have to sweeten Rio again

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"I still don't think it's good enough for BHP to win the day, given Rio's assets and potential," said DJ Carmichael & Co analyst James Wilson.

BHP's offer, worth around $130 billion (66.4 billion pounds) based on Thursday's share prices, would be the mining sector's biggest ever deal and create the world's third-biggest company after ExxonMobil and General Electric

Rio has rejected BHP's sweetened 3.4 shares for each Rio share offer, a 13 percent improvement on its initial informal approach in November.

BHP ended Australian trade 0.7 percent higher at A$36.92 on Thursday. Rio eased 0.1 percent to A$127 (58 pounds), holding at around 3.44 times BHP's share price, roughly in line with BHP's offer and suggesting the market was not expecting much in terms of a higher offer.

Numis Securities analyst Simon Tyrone said in a report that BHP's bid reflected a high level of discipline on valuation that creates value for both sets of shareholders.

"We are sceptical that BHP would consider increasing their bid meaningfully," Tyrone said, adding he did not see Chinese customers and competitors launching a full counter-bid for Rio.

Asian and European customers of both companies, particularly steel mills in China and Japan that buy hundreds of millions of tonnes of iron ore each year, have raised concerns about the clout a merged BHP/Rio would have on pricing of raw materials.

BHP/Rio would control more than a third of the world's iron ore, a quarter of the uranium and millions of tonnes of copper, aluminium and coal, as well as gold, silver and diamonds.

"BHP would love to have a situation where it can be the dominant player, a one-stop shop, in commodity markets across the globe," said Fat Prophets mining analyst Gavin Wendt.

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