Rio Tinto rejects $160bn merger deal

PERTH — Mining giant Rio Tinto yesterday confirmed that it had held discussions with diversified major Glencore regarding a possible tie-up, but said that the board had rejected a merger. The company confirmed that no discussions were currently taking place between the two companies. Rio Tinto was responding to a report in Bloomberg that Glencore had been in discussions with Rio’s largest shareholder, China’s Chinalco, about a possible merger.
The reported $160 billion takeover would have created the world’s biggest mining and commodities group.

Rio Tinto said that the two parties had discussed the possibility of a merger in July. However, after consultation with its legal advisers, the board had concluded unanimously that a combination was not in the best interests of the company’s shareholders.

“The board’s rejection was communicated to Glencore in early August and there has been no further contact between the companies on this matter,” the company said.

“Rio remains focused on the successful execution of its strategy, which the board of Rio is confident will continue to deliver significant and sustainable value for shareholders,” the company added.

Writing in a note following the merger news, analysts at UK-based Liberum said they believed the only way that Rio Tinto’s board would recommend a deal at a level of dilution that also made sense to Glencore would be if the iron-ore price was below $70/t and the relative prospects for Glencore’s commodity suit of coal, nickel, copper and zinc improved.

“Next year provided potentially the best opportunity for such a move, but today’s news should put a relative floor under Rio’s shares, preventing an opportunistic bid.”

The analysts said they believed that Glencore would only enact a bid if earnings per share dilution (post synergies) was less than five percent.
“If shareholders are comfortable with more, they could just buy Rio shares. We also feel that Rio shareholders will need a bid premium of at least 25 percent to get a deal across the line, given the average sell-side target price for Rio.” — Miningweekly