Glencore knocked back but not giving up

Caitlin Morrison
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Multinational mining company Glencore has said that it is no longer actively considering a £100bn merger with larger rival Rio Tinto, despite talks between its bosses.

In a statement yesterday afternoon, however, Glencore kept the door open for a future offer – even hinting that this could come within the six-month waiting period imposed by the takeover panel if Rio Tinto signalled its support.

The commodities group revealed that it made an informal enquiry to Rio Tinto in July, “seeking to gauge whether there might be any interest in investigating some form of mer­ger between the two companies”.

Yet Rio Tinto responded that it was not interested in pursuing such discussions, ending any possibility of a mega-merger between the two groups this summer. Reports suggest the deal could have created a £100bn mining commodities giant.

The approach by Glencore came as the price of Rio’s most profitable product, iron ore, was heading towards five-year lows earlier this year. Despite the tumbling prices, the group issued a statement to the Australian stock market, concluding that the deal was “not in the best interests of Rio Tinto’s shareholders”.

Analyst Peter Mallin-Jones from Canaccord Genuity said the chances of a deal materialising now were low. “I don’t think Rio is vulnerable, it’s not in any financial distress, its shareholders aren’t disappointed with any management actions – I struggle to see why another set of owners would be viewed as doing a better job,” he told City A.M..

Mallin-Jones agreed that Glasen­berg’s history of sizeable deals had added to the speculation around the possibility of a Rio Tinto merger.

“Once you get big, in order for you to do a significant deal the target has to be even bigger, and there aren’t too many options in the mining sphere,” he said.

Yet other city analysts are split on the future for the two companies. Edison Investment Research called the approach by Glencore opportunistic, adding it was not obvious “why Rio should accept a deal as a merger of equals”. While Ric Ronge, a portfolio manager at Pengana Capital, warned: “Glencore, if it’s got the appetite, can probably find a situation where it can get a lot more bang for its buck in terms of finding something that’s more stressed and has a better fit with their existing asset spread. Obviously they’d like iron ore, but the question is at what price?” he added.

Rio Tinto’s shares, which had soared after it rejected Glencore’s approach, plummeted by 6.5 per cent following Glencore’s statement yesterday afternoon. However, the share price stabilised and finished up more than four per cent. Glencore, meanwhile, saw its share price decline by two per cent.


Iron ore slipped to a five-year low this year, and figures from Goldman Sachs this week revealed the commodity had declined 41 per cent in the year to date, now trading at $79 per metric tonne.

According to analysts at the bank, a turnaround is unlikely: “The price decline has been dramatic, but a weak demand outlook in China and the structural nature of the surplus make a recovery unlikely.” Goldman attributed the fall in price to the fact that iron was tied to “new starts” in construction, which had also fallen sharply.


Ivan Glasenberg is known for his ambitious growth plans for Glencore. Glasenberg, who lives in Switzerland where Glencore is headquartered, joined the company in 1984 when it was still operating as Marc Rich & Co. He rose to the position of chief executive in 2002 and since then has added significantly to the company’s portfolio, overseeing the fifth-largest takeover in the history of the natural resources sector in February last year when the firm bought Xstrata. Glasenberg told the Wall Street Journal last year that his company had no work-life balance, commenting: “We work. You don’t come here to take life easy.” He showed similar tenacity in his youthful athletic pursuits – he is a former South African race-walking champion and also represented Israel in the sport.


It would be the world’s biggest mining company
Glencore has great capital discipline
Glasenberg’s management skills

Glencore would need to offer a good premium
Glencore would take on huge iron exposure
No new offer can be made until March 2015