February 25, 2015 / 6:25 AM / 4 years ago

Rio Tinto CEO sees no chance of a Glencore merger

MELBOURNE (Reuters) - Global miner Rio Tinto (RIO.AX)(RIO.L) will not be taken over by rival Glencore (GLEN.L) because there is no value in it for shareholders and regulators will never let it happen, Rio Tinto chief executive Sam Walsh said.

Sam Walsh, chief executive of mining giant Rio Tinto, takes part in a summit dialogue at the APEC CEO Summit at the China National Convention Centre (CNCC) in Beijing November 9, 2014, part of the Asia-Pacific Economic Cooperation (APEC) Summit. REUTERS/Wang Zhao/Pool

Rio rebuffed a takeover approach from Glencore last August to create a $160 billion mining and trading goliath and revealed the approach in October. Glencore did not rule out making a fresh attempt.

Under UK rules, it could return with an offer from April onward. But since October Glencore’s shares have slid relative to Rio’s, leading investors to play down the chances of it making a fresh bid in the near term.

Speaking at the Royal Institute for International Affairs in London on Sunday, Walsh said that while “the media are sort of infatuated with this,” investors did not expect a deal.

“Investors say: ‘I don’t get it. Why are you giving this any air, because it actually isn’t going to happen,’” he said, according to a transcript of his remarks, when asked about consolidation among the world’s biggest miners.

“Now, part of the reason is value. Part of the reason is, as you say, the antitrust and people who collect tax and what have you, they’re just simply not going to let it happen.”

Glencore declined to comment on Walsh’s remarks. Its market value has fallen nearly 11 percent to $59.8 billion since its bid was revealed, while Rio’s market value has climbed nearly 6 percent to $91.2 billion.

Walsh cited value and regulatory opposition as the main factors behind BHP Billiton’s failed takeover offer for Rio Tinto in 2008, too.

“At the end of the day, the BHP potential takeover of Rio fell over primarily because of value - but it fell over because the antitrust authorities said: ‘We are not going to let this happen.’ Simple as that.”

Walsh has previously said a merger of Glencore and Rio Tinto would not work because of a clash of cultures, as Glencore is a trading company operating on a short term horizon, while Rio Tinto is a mining company focused on developing low-cost, long-life mines.

Investors say the key obstacle to a deal would be whether Glencore, which is 8.4 percent owned by chief executive Ivan Glasenberg, would offer a big enough premium.

“Given Glasenberg’s reputation and large personal stake in Glencore, the company is unlikely to offer meaningfully over what the market believes, rightly or wrongly, Rio is worth,” said Ric Ronge, a portfolio manager at Pengana Capital.

“But I think it is foolish to underestimate Glencore, given the success of the company to date,” he added.

Reporting by Sonali Paul; Editing by Richard Pullin

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