Why did Rio Tinto Reject Glencore Merger and Chance to Become World's Biggest Miner?

- Leadership - Oct 08, 2014

Mining giant Rio Tinto rejected the chance to create the world’s biggest mining company after turning down an approach from Glencore to create a $160 billion behemoth.

The Anglo-Australian company revealed this week that Glencore had be in contact regarding a merger in July, which it then rejected the following month just as the price of its most important commodity, iron ore, hit a five-year low.

Such a move would have seen the new firm supplant BHP Billiton as the ultimate global heavyweight.

In a statement to the Australian stock exchange, Rio Tinto said: “The Rio Tinto board, after consultation with its financial and legal advisers, concluded unanimously that a combination was not in the best interests of Rio Tinto’s shareholders.”

On release of this statement share prices jumped to a nine-day high of 60.28 Australian dollars.

Rio Tinto made the revelation in light of news service Bloomberg’s report that Glencore had been speaking with its most important shareholder, Aluminium Corp of China (Chinalco). The Chinese state-owned business owns 9.8 percent of Rio Tinto, meaning any merger deal would require some form of understanding and approval.

Glencore is not unfamiliar with large financial deals. Last year it bought Xstrata for $46 billion in what was the mining industry’s largest ever acquisition, and now it is looking to tap into Rio Tinto’s iron ore expertise and assets.

Commentators have already cited a number of reasons why such a merger may not work for either party, one reason being a clash in philosophies of the companies, with Rio’s conservative approach conflicting with the more aggressive stance taken by Glencore.

This said, according to Citi the move could have provided an instant half a billion dollar saving just by combining nearby coal operations in Australia. 

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