EDITED BY SARAH THOMPSON, ANTHONY MACDONALD AND JAKE MITCHELL
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A report released mid-September by Wall Street brokerage Bernstein Research suggesting Rio Tinto was a logical takeover target for Glencore has lingered in people’s minds.
In this age of mining austerity, Glencore is one of the few big resources companies contemplating acquisitions. Senior analyst Paul Gait wrote that the key problems in the mining industry, as identified by Glencore, included “too much iron ore”.
“But these are all issues that are eminently fixable,” he wrote. “All that [is] required is to hand the world’s best mining assets to the world’s best management – and Glencore are making a pretty strong case that they, more than anyone else, understand what it will take to drive value in today’s market.”
London-based Anglo American has been widely speculated to be at the top of Glencore’s list of takeover targets, but chief executive Ivan Glasenberg is said to have hinted to institutions that Rio would be a more likely bet.
Well-placed sources on both sides have also suggested to Street Talk that Glencore may have called in Standard Chartered Bank earlier this year to begin to assess whether there is merit in the idea (denied on Tuesday night by one Glencore insider).
Regardless, Street Talk is not suggesting Glencore is about to launch a takeover; these things can take years or even decades.
Investors will recall Gresham’s David Feetham spent two years shadowing Rio Tinto for BHP before a deal was actually launched.
There are many challenges to doing a deal. An obvious starting point is Rio Tinto’s market value of $105 billion compared with Glencore’s £45 billion ($84 billion). Nevertheless, Glasenberg has pulled off a string of acquisitions in the past three years, including miner Xstrata and African oil and gas explorer Caracal.
He makes no secret of the fact the miner and commodities trader will pursue deals at a time when most of his rivals are divesting and returning cash to shareholders.
Gait argued a a merger of the larger Rio with Glencore would give Rio shareholders “the best of both worlds” – exposure to existing iron ore cash flows and the chance to share in potential upside in Glencore’s coal, copper and nickel mines should commodity prices improve.
Elsewhere, Bain Capital has mandated investment bank UBS to take it through to the second round of Orica’s non-mining chemicals auction. Bain is up against Pacific Equity Partners, Blackstone, The Carlyle Group and KKR & Co.
Australian Financial Review