Rio 'Pac-Man' plot to turn tables on BHP

The option is one of many being considered by a board committee in response to BHP's all-share takeover proposal worth about $140 billion (£68.2 billion).

Rio rejected that out of hand, saying it "significantly undervalues Rio Tinto and its prospects".

The company is now looking to turn the tables on BHP in the socalled Pac-Man gambit, named after the videogame in which the pursued character can turn and eat its attackers.

The audacious and risky tactic could, even if unsuccessful, help highlight Rio's value.

For Rio chief executive Tom Albanese to pull off such a move, he would have to persuade shareholders it was worth paying a premium to BHP investors.

As the BHP offer stands, Rio's shareholders are being offered a premium for their stock.

Analysts suggest that if Rio turns the tables, the loss of that premium and the takeover price for BHP could add up to $70 billion.

The prospect of that could force the parties to the table to avoid price escalation as happened when the defence was first used in the US in 1982 by financial services giant NLT to fend off an attempted takeover by insurer American General. NLT eventually agreed to a takeover from American General for $1.5 billion.

The tactic was also used when EMI and Warner Music bid for each other, although in that case both deals fell at regulatory hurdles.

Rio would not comment today. The company's chairman, Paul Skinner, is leading the board committee, which includes non-executive director David Mayhew, the head of JP Morgan Cazenove, in considering options to fight BHP.

Rio is set to outline its defence plans at a shareholder meeting on Monday week.

Analysts are sceptical that Rio would turn on BHP, and say the focus will be on other tactics under consideration that include selling assets and other moves that could increase value for shareholders.

The company is expected to stress the value that is locked up in its Pilbara iron ore facility in Western Australia, which is gearing up production more quickly than BHP's nearby iron operations.

It is not, however, expected to include Chinese companies in any planned defence strategy.

The Chinese could launch their own white knight bid for Rio as concerns rise among customers of both companies that a combined juggernaut could push up their costs. The country has many cash-rich companies in the mining, metals and energy sector, such as Chalco, China Shenhua Energy and Baosteel, that could be formidable if they acted together.

Beijing has a huge stake in the outcome of the bid.

A merged BHP-Rio Tinto would control more than one-quarter of the global supply of iron ore.

China is expected to consume 59% of the world's iron-ore production, 40% of aluminum production and 29% of refined copper by 2012.