US Edition Commodities trader Glencore has left the door open to return with another approach for iron ore giant Rio Tinto after having a deal that could have valued the merged company at approximately $160bn (£100bn) rejected.
The Swiss-based minerals conglomerate disclosed that it had made an informal telephone call to Rio in July “seeking to gauge whether there might be any interest at Rio Tinto in investigating some form of merger between the two companies”.
The deal would have created the world’s biggest integrated mining giant, with an enterprise value of $224bn, overtaking BHP Billiton in terms of market capitalisation.
But after Rio rejected the proposal in August, and following news of the approach leaking on Monday night, Glencore said that while it is “no longer” considering any possible merger transaction with Rio, it left the door open to return in the event of a third party bid.
Under Takeover Panel rules, Glencore will now have to wait for at least six months before making another approach for Rio, the world’s largest shipper of iron ore.
The ambitious move, were it to succeed, would be the largest takeover in the industry since Glencore’s chief executive, Ivan Glasenberg, pioneered the $41bn takeover of coal producer Xstrata two years ago. Rio Tinto’s shares see-sawed to close 23.5p at 3020.50p on Tuesday, after they initially lost gains on the back of Glencore’s statement. Glencore shares closed down 8.3p at 331.05p.
Industry watchers said that a six-months cooling off period would unlikely be enough for Mr Glasenberg to give up his mega-deal aspirations.
“Glencore’s Xstrata deal took months to pull off and a merger with Rio Tinto would be a much bigger transaction, so a six-month takeover panel block isn’t a major issue, it’s a long game,” said Marc Elliott, an analyst at Investec.
“The world could be a very different place in six months’ time, Glencore may be a lot less geared, and Rio may be looking less attractive if iron ore keeps getting beaten up, which could lead shareholders to think differently over the time frame” Mr Elliott said.
It is understood that Glencore had originally approached Rio Tinto with a nil-premium all share merger plan.
Glencore had also reportedly met with Aluminum Corporation of China – the biggest single shareholder in Rio Tinto with a 12pc stake – to measure its interest in a $160bn deal with Rio.
Chinese backing would be essential for any deal to succeed, bankers said. A Rio tie-up with Glencore would require scrutiny from Beijing’s competition regulator, Mofcom, which demanded Glencore Xstrata sell its Peruvian copper mine, Las Bambas, to a Chinese consortium for its merger to be approved.
Speculation about a big merger and acquisition deal in mining has peaked since Mark Cutifani, chief executive of Anglo American, said earlier this year that the company would listen to offers. Glencore could turn its attention to Anglo American, which like Rio has significant iron ore and industrial commodity assets.
Rio is the largest shipper of seaborne iron ore and the biggest single producer of the steelmaking commodity in Australia.
But the company has been hit by a sharp slowdown in world demand, in which the price of iron ore has fallen 40pc this year to about $80 per tonne.
Rejecting the approach, Jan du Plessis, Rio’s chairman, said the company has made “significant progress in refocusing and strengthening its business”.
“The board believes that the continued successful execution of Rio Tinto’s strategy will allow Rio Tinto to increase free cash flow significantly in the near term and materially increase returns to shareholders. Rio Tinto’s shareholders stand to benefit from the very considerable value that this will generate,” he added.