Glencore targets Rio Tinto for record $160bn merger deal

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The billionaire mining tycoon Ivan Glasenberg, chief executive of Glencore, is in the early stages of putting together a takeover offer for his giant rival Rio Tinto in what would be the biggest ever deal in the industry, creating a combined company worth $160bn (£99bn), according to reports last night.

Such a deal would come little over a year after he completed the merger of Glencore with Xstrata – a takeover that created a business then worth $66bn. It would easily leapfrog BHP Billiton to become the world’s biggest mining company.

Mr Glasenberg has reportedly sounded out Rio Tinto’s major Chinese shareholder about a deal. Whether they agree to start the ball rolling or not, mining industry executives pointed to Mr Glasenberg’s legendary persistence.

“We’re talking about Ivan here,” said one. “We all know you can never bet against this man’s ambition.”

Mr Glasenberg’s deal with Xstrata took months of negotiations with major shareholders, particularly the Qataris. It eventually involved Mr Glasenberg calling on Tony Blair to broker an agreement, using his Middle East connections, in the middle of the night at Claridge’s in London.

Reports of Glencore’s approach to Rio’s largest shareholder, Aluminium Corp of China, better known as Chinalco, emerged last night after the London Stock Exchange had finished trading. But Rio Tinto is so vast that it has stock trading on other exchanges. In New York, these rocketed more than 7 per cent on the prospect of a deal.

Bloomberg, which broke the story, said no talks had been held formally between Glencore and Rio, although Mr Glasenberg has made Rio bosses, led by chief executive Sam Walsh, aware in private that he would be keen.

Such a takeover would give Glencore access to Rio’s vast resources, including the prospect of exploiting its recently granted licence to mine for iron ore in Guinea, where Chinalco and Rio have just agreed a deal to explore the world’s biggest untapped iron resource, after years of squabbling with the controversial mining tycoon Beny Steinmetz.

That said, a remarkably prescient note from Bernstein Research last month pointed out that a Glencore tie-up with Rio was looking increasingly likely, precisely because Rio was so dependent on iron ore, which is facing a long future of unpredictable, and currently low, prices. Bernstein had previously said Mr Glasenberg was more interested in merging with Anglo American, but that Anglo’s resurgence under its new chief executive, Mark Cutifani, made the company less vulnerable to takeover. Now, they argued, Rio Tinto was looking the most troubled strategically.

Even if iron ore prices do rise in the coming months, Rio would still benefit from “capital discipline” – keeping a lid on overheads and targeting only the more profitable operations. As Bernstein said: “No one has been a more consistent advocate of this than Glencore.”

A Rio-Glencore merger would create a business with market-leading positions in iron ore, copper, nickel, zinc and coal and be, as Bernstein says, “the most diversified mining company on the planet”.

Analysts suggested Glencore would have to pay a significant premium to Rio’s current £57bn stock market value, but that potential synergies behind a merged company could total $1.7bn.

However, Bank of America Merrill Lynch issued a report last night stating “six reasons why a deal is not on the cards”. These include: the difficulty of Chinalco being involved in a high-profile deal so soon after its general manager resigned under a corruption cloud; Rio’s shareholders not wanting to own assets in risky countries such as the Democratic Republic of Congo and Colombia; and the belief that Rio would demand more than Glencore would be prepared to pay.