Rio Tinto Group jumped the most in more than a year in London after saying it rejected a merger approach from Glencore Plc (GLEN) that would have created the world’s largest miner.
Glencore made a merger proposal in July, which was unanimously rejected by Rio Tinto (RIO)’s board, London-based Rio said today in a statement. After being rebuffed by the board, Glencore has reached out to Rio’s biggest investor, Aluminum Corp. of China, to gauge its interest in a potential deal in the next year, according to people familiar with the matter.
By acquiring Rio Tinto, Glencore Chief Executive Officer Ivan Glasenberg would create the world’s largest mining company worth more than $160 billion, usurping BHP Billiton Ltd. (BHP) He’d also add Rio Tinto’s giant iron ore mines in Australia to Glencore’s leading positions in copper, coal, nickel and zinc.
“The pressure is on Rio now,” Chris LaFemina, a mining analyst at Jefferies LLC, said today in a report. “If Rio management does not deliver material capital returns to shareholders, as promised, or if the iron ore price sharply falls next year, Rio could become much more vulnerable.”
Rio, the world’s second-biggest iron ore exporter, climbed as much as 6.2 percent in London, the biggest intraday gain since July 2013. The stock traded at 3,138 pence at 11:22 a.m.
Chinalco, as the state-owned company is known, controls about 9.8 percent of Rio, and talks took place in recent weeks, one of the people said, asking not to be identified as the details are private.
Biggest Miner
Despite the July approach, no talks are under way between the two companies, no formal offer has been made, none is likely before the end of 2014, and Glencore could decide against an offer, the people said.
Spokesmen for Glencore and Chinalco declined to comment yesterday.
“With falling commodity prices and falling share prices deals like this are going to get mooted more and more,” Evan Lucas, a markets strategist in Melbourne at IG Ltd., said by phone today. Still, a potential merger would be a “regulatory nightmare,” he said.
Glencore views Chinalco as potentially supportive of a change in control after the Chinese company failed to secure a board seat at Rio and has seen little progress on a joint iron-ore project in Guinea, one of the people said. Glencore is also gauging the views of other Rio shareholders, and studying the tactical, financial, and regulatory obstacles to the deal as it considers its next steps, the people said.
Share Offer
Any offer would consist primarily of shares in Baar, Switzerland-based Glencore with some cash, and the company isn’t interested in a hostile deal, said the people.
Chinalco paid 6,000 pence a share in 2008 for its Rio stake, roughly double the company’s current share price. The Chinese company is not eager to sell, and would demand a significant premium in order to sign off on a deal, one of the people said.
Regulators probably would have required a combined company to sell or spin off assets, said Ken Hoffman, a Bloomberg Intelligence analyst. “You would generally think the regulators would take a very hard eye at this,” he said.
Rio controls significant iron ore operations in the Pilbara region of Western Australia. The price of the steelmaking ingredient has slumped this year amid an expanding global glut and weaker demand from China, the biggest buyer.
Glencore completed the $29 billion all-share takeover of Xstrata last year to add coal, copper, nickel and zinc mines to its trading empire. Glasenberg is its second-largest shareholder with an 8.3 percent stake.
Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a non-executive director of Glencore.