Glencore mega-merger on the cards

Glencore approached Rio Tinto earlier this summer over a tie-up that would have created the world's biggest mining group.

This week we learned that commodities trader and mining giant Glencore approached iron ore and copper miner Rio Tinto about a merger in the summer, and was rebuffed.

UK takeover rules prevent the two from having new talks for six months, but Glencore is still keen on further deals after buying Xstrata last year.

A tie-up would create the world's biggest mining group, with a market value of £100bn. The combined entity would make up 10% of the FTSE 100.

What the commentators said

You can see why Ivan Glasenberg, Glencore's chief executive, is keen on a merger, said Alistair Osborne in The Times. Glencore has coal, copper and zinc mines to back its commodities trading book, but it has no physical presence in iron ore.

Rio also boasts "world-class mines, feeding China from politically stable Australia", and little debt, so Glencore's credit rating would get a boost. Glasenberg's track record suggests we haven't heard the last of the deal, said James Moore in The Independent.

"You don't pull off mega-deals like the £39.1bn takeover of Xstrata, ousting its chief executive in the process, without a keen strategic mind and a willingness to play the long game."

Yet it's hard to see the appeal for Rio, said Nils Pratley in The Guardian. Given Glencore's high debts, any offer is likely to be funded in Glencore shares, and these are hardly must-haves: they are down by 35% since listing in 2011.

Sure, the price of iron ore has hit a five-year low of $80 a tonne but Rio still makes a healthy 44% margin on its main product, as it only costs $45 a tonne to dig it up and ship to China. If prices fall further, cutting production and spending would help shore them up. So there's no need to seek shelter with Glencore.

A huge takeover premium would override this, but "Glasenberg doesn't do big premiums". In sum, Rio doesn't need Glencore, and Glencore would have trouble offering appealing terms.

Recommended

Aviva: a share for income investors to tuck away
Share tips

Aviva: a share for income investors to tuck away

Insurance giant Aviva is one of the highest yielding stocks in the FTSE 100 – and it’s cheap, too, making it a tempting target for income investors. R…
18 May 2022
The ten highest dividend yields in the FTSE 100
Income investing

The ten highest dividend yields in the FTSE 100

Rupert Hargreaves looks at the FTSE 100’s top yielding stocks for income investors to consider.
18 May 2022
Three fast-growing, undervalued UK mid-cap stocks to buy now
Share tips

Three fast-growing, undervalued UK mid-cap stocks to buy now

Professional investor Katen Patel of the JPMorgan Mid Cap Investment Trust picks three fast-growing UK mid-cap stocks to buy now.
18 May 2022
Should you buy Vodafone shares, or steer clear?
Share tips

Should you buy Vodafone shares, or steer clear?

Vodafone grew revenue by 4% and profit by 11% last year, and offers investors a 6.4% dividend yield. So should you buy Vodafone shares? Rupert Hargrea…
17 May 2022

Most Popular

Get set for another debt binge as real interest rates fall
UK Economy

Get set for another debt binge as real interest rates fall

Despite the fuss about rising interest rates, they’re falling in real terms. That will blow up a wild bubble, says Matthew Lynn.
15 May 2022
Is the oil market heading for a supply glut?
Oil

Is the oil market heading for a supply glut?

Many people assume that the high oil price is here to stay – and could well go higher. But we’ve been here before, says Max King. History suggests tha…
16 May 2022
Value is starting to emerge in the markets
Investment strategy

Value is starting to emerge in the markets

If you are looking for long-term value in the markets, some is beginning to emerge, says Merryn Somerset Webb. Indeed, you may soon be able to buy tra…
16 May 2022