No go for GlenTinto as Rio rejects Glencore merger

Glencore boss Ivan Glasenberg wants to create the world's biggest miner, but Rio Tinto isn't playing ball.

by Rachel Savage

Glencore chief executive Ivan Glasenberg is nothing if not ambitious. Barely a year had passed since his company gobbled up Xstrata for $46bn (£28.6bn), than it made a move for Rio Tinto, in a bid to create the world’s biggest miner.

Glencore approached Rio about a possible merger in July, but the iron ore giant’s board ‘concluded unanimously that a combination was not in the best interests of Rio Tinto’s shareholders’.

Since it rejected the bid in early August, ‘there has been no further contact between the companies on this matter’, Rio said in a ‘statement regarding press speculation’ (rumours of a potential merger have been floating around since December).

But Glasenberg, who is his company’s second-largest shareholder, with an 8.3% stake, isn’t giving up the ghost just yet. Glencore has instead started sounding out Rio’s biggest shareholder, Aluminium Corporation of China, about its view of a deal that would value the combined mega miner at more than $160bn, according to Bloomberg.

Chinalco, as the state-owned company is known, bought its 9.8% stake for £7bn in 2008, heading off an attempted takeover of Rio by BHP Billiton. While it hasn’t commented publicly on any ‘GlenTinto’ tie-up, it wouldn’t be surprising if it takes a dim view of the idea – Rio’s shares are now worth half what Chinalco bought them for, and nobody likes making a loss.

Then again, Rio is now an easier target for Glencore. Despite having a market cap of roughly £58bn compared to its Switzerland-based suitor’s £44bn, Rio’s shares had slumped more than 11% this year before today, as iron prices plunged 40% to $80 a tonne. In contrast, Glencore’s had risen more than 9%, after it announced first half profits up 8% and a $1bn share buy-back programme in August.

Rio’s shares were up around 5% to 3,143p in mid-morning trading, while Glencore’s were down more than 1% to 335p.

It remains to be seen whether Glencore will be back for a second bite at the apple, but UBS analyst Glyn Lawcock said any deal ‘would probably require a hostile takeover’, as Rio’s board think the company is currently undervalued. But Glasenberg and co aren’t keen on that, according to Bloomberg, presumably preferring a ‘merger of equals’ that then turns out to be not-so-equal, a la Xstrata.

Either way, there’s bound to be some mining M&A action. As Bernstein analyst Paul Gait put it, ‘We believe that the exigencies of Glencore’s strategic situation as well as the personal motivations of its senior management all point in the same direction, namely towards further acquisitions.’

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