BHP, which also revealed plans for an initial share buy-back of around $US30 billion post-merger based on the strong cash-flow of the new company, said the marriage between the two would create the world's premier resources company with a "unique portfolio" of assets.
Thus far Rio has refused to be won over, with the company's board refusing to even enter into any discussions over the proposal. News reports have suggested Rio expects a much higher offer to arrive, and have also said BHP has secured $US70 billion in funding for the deal, which analysts expect could go as high as $A160 per Rio share and may involve a cash sweetener.
The $US3.7 billion in synergies between the two would be achieved via "efficiencies and acceleration of volumes" to meet strong customer demand, BHP said.
BHP said the merger of the two companies was the most logical and compelling consolidation opportunity for both and offered important material benefits.
These would include faster and more efficient development of the iron ore resources in the Pilbara, "optimisation" of the Australian coal operations in the Hunter Valley and Bowen Basin, and expanded development opportunities across other commodities.
The company also pointed to improved project development and exploration opportunities and estimated the combination would generate some $1.7 billion cost savings in the third full-year after the merger, achieved through the reduction of duplication and other efficiencies.
The company said further earnings before interest, tax, depreciation and amortisation of $2 billion could occur by the seventh full year following the deal, driven mainly by higher volume of sales, giving the $3.7 billion per savings per year.
Estimated one-off implementation costs for the merger would amount to some $650 million in the two years post-merger.
The company added that it had taken a thorough analysis of the antitrust implications of the combination and said it was "confident" antitrust issues would not pose any problems for the merger.
The major issue would be the merged entity's iron ore business, which would control around 27% of the world's iron ore sales, but BHP said the merger would only increase the new company's incentive to invest in iron ore assets and grow production.
"In addition, BHP Billiton expects emerging and new low-cost producers will increase competition in what is a rapidly evolving marketplace," the company said.
BHP's proposal, based on its closing share price on November 9, is worth $US138.1 billion, which represents a 15% premium to Rio's market capitalisation in both Australia and the UK on November 7 and 8.
Shares in BHP today closed at $A41.70 on the Australian Securities Exchange, down 77c, while Rio's shares were boosted by $8.82 to $139.72.
