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Rio Tinto Averts Takeover Bid From Glencore but For How Long?

Rio Tinto has dodged a bullet.The UK-based company rejected a $160 billion offer to merge with Glencore, declining to form the industrys largest mining ...

|Oct 8|magazine5 min read

Rio Tinto has dodged a bullet.

The UK-based company rejected a $160 billion offer to merge with Glencore, declining to form the industry’s largest mining company.

“The Rio Tinto board, after consultation with its financial and legal advisers, concluded unanimously that a combination was not in the best interests of Rio Tinto’s shareholders,” the company said in a statement.

According to Business Review Australia, the company engaged with Macquarie Group to lead the defense against the potential takeover.

“The partnership is geared towards helping Rio Tinto defend against merger talks, as sources close to the company believe a “merger of equals proposal” greatly undervalues the mining company, and that there is no support within Rio’s management for the proposal.”

The deal, which would have been the biggest in mining history, would have surpassed BHP Billiton in terms of coal, iron ore and copper production. But the timing of Glencore’s takeover bid is no coincidence.

Rio, which gets about 80 percent of its sales from iron ore mines in Western Australia, is now left struggling with declining prices for the metal. Iron ore accounts for roughly 64 percent of the company’s net value.

“The pressure is on Rio now,” Chris LaFemina, a mining analyst at Jefferies LLC, said 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.”

Glencore’s chief executive Ivan Glasenberg will have to continue salivating over the possible mega-merger as the Swiss-based commodities trader will have to wait at least six months before pursuing a deal under UK takeover law.