Rio Tinto shares jump on rejected Glencore takeover offer

The iron ore miner led by Jan du Plessis rejected the offer from Ivan Glasenberg’s trading-led giant Glencore

(AFP/Getty)

Shares in Rio Tinto jumped more than 6 per cent as chairman Jan du Plessis declared Glencore had sounded him and his board out over a potential $160 billion (£100 billion) merger.

However, the South African said the approach had been rejected and that no discussions were now taking place with Glencore.

Rio issued its statement before the London markets opened today, following reports last night that Glencore had been sounding out its biggest shareholder, the Chinese state-controlled aluminium giant Chinalco.

It emerged today that the approach to the Chinese came after Glencore chief executive Ivan Glasenberg was knocked back in his merger offer by du Plessis and his board.

Despite the jump in Rio’s shares, which gained 146.5p to 3143.5p, analysts and mining industry executives were not convinced a deal would happen, primarily citing Glencore’s inability to offer a premium to Rio’s shareholders.

They pointed out that Glencore’s shares, virtually flat today at 337p, remain stranded way below its 2011 flotation price, while the company is seen as relatively highly indebted, hindering its ability to offer any more than an all-share merger.

As one mining executive said: “The markets are all excited this morning and it all seems great, but they’re forgetting the obvious point — Rio holds all the cards and will not say yes.”

A further issue was the difference in risk profile of the two companies. Rio is seen as a relatively low-risk investment based on a massive share of the global market for cheaply produced iron from its vast Pilbara mines in Australia. Glencore, on the other hand, is a trading-led mining group with assets in racier parts of the world like the Democratic Republic of Congo.

“To swap shares in a low-risk company like Rio for those in a high-risk-high return outfit like Glencore, you’re going to demand a big price,” said one analyst.

On the other hand, some analysts said, Rio’s iron ore position leaves it stuck in a very low-priced commodity, fighting a price war with Chinese producers. Glasenberg, they said, would probably end that, crimp the output and try to drive up the price. Meanwhile, cost savings and synergies could be huge.

City bankers were hoping for a deal due to the fees bonanza from such a transaction. Glencore’s takeover of Xstrata, in January 2013, racked up fees of $114 million, according to Thomson Reuters.