LONDON Jan 17 Top shareholders in crisis-hit
Rio Tinto have identified an unusual scapegoat for the
hapless takeovers that triggered the company's eye-watering $14
billion writedown - each other.
Chief Executive Tom Albanese, who led a top-dollar purchase
of the Alcan aluminium group, and Doug Ritchie, the executive
who secured Mozambican coal business Riversdale, both lost their
jobs on Thursday after Rio confessed how badly their deals had
Parsing the company's announcement, investors came to a rare
conclusion. Rather than demand further scalps from the Rio
board, several said they had only themselves to blame for
failing to veto acquisitions that looked so wildly overpriced.
"It is really simple. Big acquisitions, especially big
acquisitions at big premiums, are really dangerous. We've known
it for years," one of Rio's 15 largest shareholders told
Reuters. "It's just that human desire and psychology fight
against that evidence."
Thursday's reactions suggest the 'shareholder spring' - the
trend identified last year in which investors acted more like
owners than passive bystanders (and in the process torpedoed
several blue-chip companies' pay packages for senior executives)
- may have longer to run.
Albanese was the muscle behind Rio's takeover of Alcan in
2007 - a $38 billion miscalculation that came at the end of a
commodities boom and on the eve of a financial crisis which
brought chaos to global markets.
Rio's offer for Alcan eclipsed an earlier bid from Alcoa
Inc. by more than $10 billion and despite some whispers of
discontent, shareholders seduced by the banker spin voted
convincingly in favour of the union.
Albanese and Ritchie then gave chase to Mozambique-focused
coal miner Riversdale in 2011 during a short-lived period of
calm in a volatile global economy.
Optimistic estimates on future market demand and the quality
of Riversdale assets helped Rio trump rival bids. Again, the
majority of shareholders accepted the deal. But since then, like
many others in the region, Rio has struggled with poor
infrastructure between pit to port, and has had to cut estimates
of how much coal it can deliver.
"Mozambique is more of a surprise but the industry's record
on acquisitions is appalling and Rio is not alone in destroying
shareholder value," said a second shareholder among Rio's ten
Even investors who opposed the deals say there's a limit to
how much blame they can deflect back to management and board.
"We always thought Alcan was a poor deal (but) I would not
be agitating for the chairman to go," said a third large
investor adding Rio had done enough by way of making amends.
Rio shares closed just 0.5 percent down on London's FTSE 100
in spite of the high-profile sackings, suggesting that
investors were braced for bad news long before the company
announced it would atone for its unsuccessful M&A activity.
Striking a newly cautious note, the investors called on
their cohorts to look harder at the next alluring deal to come
to the table.
"The M&A bankers come out with great stories, the managers
get excited about scale and it's up to shareholders to identify
ill-discipline and react to it," the first investor said.
"It's a perpetual cycle. Scaling up, storytelling,
realisation, regret, forget and then there's a brand new story.
We're in a phase where in this particular industry, people are
starting to pay the price for hubris."