Battle for Rio Tinto is possible

Australian energy and mining giant BHP Billiton ended months of speculation Thursday when it confirmed it had approached rival miner Rio Tinto about a potential merger.

Rio Tinto rejected the proposal -- worth $113 billion, according to deal tracker Dealogic -- which could turn into a protracted takeover battle.

BHP Billiton said it wrote twice to London-based Rio Tinto and “intends to continue to seek an opportunity to meet and discuss its proposal with Rio Tinto.”

Rio Tinto objected to the offer, saying in a statement that the deal “significantly undervalues” the company.

BHP is offering three of its shares for each share of Rio Tinto. The target’s stock soared $82.70, or 23%, to $440.20 in U.S. trading, while BHP’s shares fell $3.50 to $76.85.

Mining companies have been enjoying a profit boom as commodity prices have rocketed in recent years, thanks to strong demand in China and other emerging markets.

Brazilian miner Companhia Vale do Rio Doce, the world’s largest iron ore producer and exporter, declined to comment on the news. This year, speculation swirled that Companhia Vale would team with BHP Billiton in a joint bid for Rio Tinto, then break up the company.

At $113 billion, the deal would exceed October’s $95-billion takeover of Dutch bank ABN Amro Holding by a consortium of banks led by Royal Bank of Scotland, the largest merger-and-acquisition deal so far this year.

It also would rank as the second-largest such deal on record; the largest is Vodafone Group’s acquisition of Mannesmann in a deal worth $172 billion in 1999.