LAUNCESTON, AUSTRALIA – It must be tempting for Rio Tinto Chief Executive Sam Walsh to contemplate whether he should buy Glencore, almost a year after fending off an unwelcome approach from his now beleaguered rival.
It’s safe to say the almost 30 percent plunge in Glencore’s shares to a record low on Monday has laid to rest any hope that the mining and trading company had of pulling off a merger deal with Rio Tinto, which is vying with Brazil’s Vale for the title of the world’s largest iron ore producer.
When Glencore boss Ivan Glasenberg mooted a deal with Rio Tinto in July last year, the shares were trading around 344 pence ($5.19), while those of Rio Tinto were around 3,244 pence.
By Monday, Glencore’s stock was down 80 percent to 68.62 pence, while Rio Tinto’s was at 2,111 pence, a drop of about 35 percent.
These numbers alone make any new bid by Glencore fanciful, but they do raise the possibility that Glencore itself is vulnerable.
Because Glasenberg controls 8.4 percent of Glencore stock, and another 8.17 percent is owned by Qatar’s sovereign wealth fund, it’s unlikely that any deal could be done without the approval of these two major shareholders.
Glasenberg is unlikely to want to sell out unless the price is right, and no doubt he will view the collapse in Glencore’s shares as an unjustified overreaction on the part of jittery investors who largely don’t understand commodity markets.
But even if the combative former South African, who made his name as a trader and deal-maker, first at Glencore and then by putting together its takeover of miner Xstrata, doesn’t want to sell, he may be forced to divest some assets.
Glencore’s main problem is its high debt of about $30 billion and to tackle this it has just raised $2.5 billion through a share placement and is said to be looking to sell its agricultural division for as much as $12 billion, although that amount looks optimistic in the light of events this week.
For the rest of this article, click here: http://www.reuters.com/article/2015/09/30/us-column-russell-glencore-riotinto-idUSKCN0RT0AW20150930