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REPORT: Glencore Eyeing Rio Tinto in Takeover Bid

GlencorePLC (LSE:GLEN)is looking to make its next big move as the mining world continues to struggle with volatile commodity markets.The Swiss-based com...

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|Sep 16|magazine7 min read

Glencore PLC (LSE:GLEN) is looking to make its next big move as the mining world continues to struggle with volatile commodity markets. 

The Swiss-based company, which has a stout reputation of growing through acquisitions, reportedly has its eye on Rio Tinto as iron ore prices continue to plunge, reaching a new five-year low.

A takeover attempt at current prices, however, seems improbable.

According to Pengana Capital fund manager Tim Schroeders, Rio Tinto is definitely on CEO Ivan Glasenberg’s radar but the company is unlikely to make a move.

“Where the two companies currently sit market cap wise, I doubt whether Glencore would be that aggressive,” Schroeders said.

Glasenberg, who has an impressive history of buying assets at the bottom of the market, has snatched up Xstrata, Viterra and Caracal in the space of just the last two years.

The ability to have the quality asset base of any of the top-three iron ore players makes perfect sense for Glencore.

“They would love to be in iron ore longer term without spending the significant capital needed for a greenfields development,” Schroeders adds.

Merger of the century

If the deal actually happened, sources in the industry believe there would be “massive regulatory issues” around a Rio-Glencore merger.

“Let’s face it, they (Glencore) had to sell Las Bambas to do Xstrata (merger), what would they have to sell to do Rio?”one resource fund manager said about the potential deal.

“They couldn’t even pull off the nickel merger with Vale in Canada.”

While Glencore doesn’t have the quality assets of Rio Tinto or BHP Billiton, the company has a phenomenal management organization.

“The argument within Glencore is that management have had to work harder because of (the company’s) lesser-quality assets and their internal belief is that they do it better than BHP and Rio because they are not blessed with wonderful assets.”

A merger with Glencore would give Rio shareholder “the best of both worlds” including a chance to share in potential upside in Glencore’s coal, copper and nickel mines.

“A Rio Tinto-Glencore combination would create market leading positions in iron ore, copper, nickel, zinc and coal as well as significant optionality around a number of lesser metals and minerals,” said Paul Gait, senior analyst for Wall Street brokerage Bernstein Research.

“Moreover, it would create the biggest and most diversified mining company on the planet. It would be a Glencore-Rio combination that would quickly become the ‘most own’ stock for anyone looking for mining exposure.”

With Glasenberg at the helm, anything is possible.