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Will Rio Tinto's rejection stop Glencore?

Tuesday, October 07, 2014 - 01:46

Rio Tinto rejects a merger approach from smaller rival Glencore to create a $160 billion mining and trading giant. As Hayley Platt reports the news sent shares in both firms up.

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It would have created the world's biggest mining and trading group worth a $160 billion dollars. But Rio Tinto has turned down an offer from its smaller rival Glencore. Shares in both companies rose 4-5 percent on the news. The approach came as the price of iron ore - which made up 92% of Rio's first half profits - is at five year lows. Quentin Webb is from Reuters Breakingviews. SOUNDBITE: Quentin Webb, Associate Editor, Reuters BreakingViews, saying (English): "As a Rio shareholder, you probably think Glencore is being a bit opportunistic here. They're moving in at a very low point for Rio and of course the idea of a merger is a little bit suspicious because who's going to come out on top in that merger." Any deal would need the approval of Rio's Chinese investors. Chinalco bought a 10 percent stake in the Australian miner 5 years ago when its shares were double their current value. Shareholders also say most of the market sees Rio as currently at least 30% undervalued - meaning Glencore would have to go hostile with any new offer. SOUNDBITE: Quentin Webb, Associate Editor, Reuters BreakingViews, saying (English): "At the moment there seems to be no live discussions so it maybe where this is where it stands, the question for Rio is where the iron ore price moves to in the future. If it continues to tank, remember this is almost all the kind of operating profit that's at Rio at the moment then they come under more and more pressure." Glencore is no stranger to big deals - it bought rival Xstrata two years ago in the sector's biggest ever takeover. Adding Rio would give it instant scale in iron ore and a dual-listing to match rival BHP. Some estimate the two could also save $500 million dollars by simply combining their neighbouring coal operations in Australia.

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Will Rio Tinto's rejection stop Glencore?

Tuesday, October 07, 2014 - 01:46