Ivan Glasenberg’s iron will at Glencore could still force mega-merger with Rio Tinto

The miner may have rebuffed the first approach from the commodity giant, but don’t write a deal off yet

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The City is betting against Ivan Glasenberg.

The billionaire, South African driving force behind the commodities trading and mining giant Glencore has been trying to get a $160bn (£100bn) merger deal together with the iron-ore behemoth Rio Tinto.

News of the talks emerged on Monday, when Rio announced its board had rejected an informal approach from Glencore.

In July, Mr Glasenberg phoned his fellow South African, Rio chairman Jan du Plessis, to offer a merger. Detailed, it wasn’t, but he’d planned his approach enough to offer  Mr Du Plessis the chairman’s job (we don’t know what Glencore’s new chairman, Tony Hayward, of BP Deepwater Horizon fame, thought of that). Mr Glasenberg, meanwhile, would be chief executive.

Although the conversation seemed informal,  Mr Du Plessis figured it was serious enough to merit referring the matter to the board. After all, the athletic Mr Glasenberg is not a man whose words one takes lightly.The directors discussed the idea, and politely declined in August.

However, typically for  Mr Glasenberg, he is not letting it go so easily. On Monday night it emerged that he or his advisers had been sounding out Rio’s biggest shareholder, the Chinese state-controlled aluminium giant Chinalco, to see how it would feel about such a deal.

That may seem slightly sneaky – going behind Rio’s back like that. But, as anyone who knows how the commodities world works, it’s fair game. The top trading houses like Glencore, Trafigura and Vitol put together complicated deals on a daily basis. They get their edge by using their networks of contacts in business and politics around the world to squeeze a trade. It would come entirely naturally for him to “reach out” to his contacts at the Chinese giant. Any decent trader would do the same.

And Mr Glasenberg is a trader like few others. He learned his skills at the elbow of the legendary commodities tycoon and convicted tax evader Marc Rich, rising through the ranks at his empire until taking over the firm as chief executive in 2002. By then it had been renamed Glencore and was on its way to becoming one of the biggest companies in the world – a position Mr Glasenberg cemented with moves into buying mining assets that resulted in the 2011 stock market flotation that made him  his billions.

As ever, Mr Glasenberg sold at the top of the market, pricing the stock at 530p. It has never been so high since, last night closing at 331p.

Yesterday, under Takeover Panel rules, Glencore issued a statement confirming that it had been considering a merger with Rio, although those plans were now in abeyance, at least for six months.

That looks pretty final, you could say, but with  Mr Glasenberg, never say die is the watchword. If he does not get his way at first, he will keep trying until he does.

Take Xstrata: Mr Glasenberg had spent a decade trying to put together a deal to merge the mining business run by his old school friend, Mick Davis. After several failed efforts, a bid in 2007 got some way down the tracks until Mr Davis argued that his investors couldn’t get a handle on how much the privately owned Glencore was worth: a crucial factor when considering the price of a merger. This hurdle was solved by its flotation four years later, and in 2011, within months of the float, the talks resumed. Once again, they foundered as Xstrata shareholder Qatar held out for more. Mr Glasenberg eventally paid up, but on the condition that he, not  Mr Davis, be made CEO.

The moral is that you should not bet against him.

However, analysts and fund managers were pretty much united yesterday in citing good reasons for the deal not to happen. The prime one was that Rio’s new management under Sam Walsh has already made the company a far tighter business than it has been before – cutting costs and simplifying its structure. This has made it less vulnerable to opportunistic takeovers.

Also, it has opted for a strategy to go big in iron ore, especially from its low-cost, modern mines in Australia, from where it is producing massive volumes.

As one top 10 investor said: “Rio has spent the last year getting into good shape; cutting costs, simplifying its structure, strengthening its balance sheet and increasing its dividend. It looks like a cleaner business, so I’m not sure how much of a benefit a tie-up with Glencore would be.”

This was a diametrically opposed strategy to that propounded by Mr Glasenberg, who thinks it is crazy to produce so much of an asset that you drive down the price you’re going to get for it.

Also, Rio shareholders would demand big money to merge their relatively low-risk company for the racy trading house Glencore. And, thanks to its high levels of debt, Glencore cannot afford to pay much of a premium, if anything at all.

As Richard Buxton, the head of equities at Old Mutual Global Investors said: “It’s déjà vu all over again. Ivan Glasenberg is trying to acquire assets on the cheap for paper [Glencore shares, rather than cash].

“As with Xstrata, the promise of cost savings and marketing synergies is dangled as a carrot to offset the small matter of not paying a premium for control of other shareholders’ assets.”

Those less dismissive of the deal, however, highlighted that those marketing synergies could be huge.

While the deal has gone away for now, Rio investors were delighted that its management seemed to be getting rewarded for its efforts in turning the business around.

Chris Murphy, UK Equity Fund Manager at Aviva Investors, said:  “Although it’s on hold for the time being, the interest in Rio from Glencore supports our long-held view that there is value in the business and they have a strong balance sheet and quality assets.”

Another, while arguing the deal was better for Glencore than Xstrata, said the resumption of takeover interest in the industry could pave the way for other deals. He speculated that Rio’s fellow iron-ore giant BHP Billiton now looked like a possible merger candidate.

Rio and BHP abandoned 18 months of merger talks in 2008. “Could that deal be back on the cards?” asked the shareholder.

One thing is for sure: when Mr Glasenberg comes knocking, you know he thinks the value of what you’ve got is going to rise.

As Mr Buxton says: “The smartest guy in town has expressed an interest in iron ore when everyone is bearish about it. That’s interesting.”