‘Passed his first test’: Rio Tinto walks away from $300 billion mega-merger

Rio Tinto, the largest Australian iron ore miner, has abandoned takeover talks with Glencore, sinking a potential $300 billion mega-merger deal that would have created an unrivalled mining industry juggernaut.

The breakdown in talks, announced on Friday morning, came amid an impasse over the proposed ownership structure of the combined entity, which Glencore believed undervalued its worth. Sources briefed on the confidential negotiations between the two heavyweights said Swiss-based Glencore was pushing for a deal that would have handed its shareholders 40 per cent of the group.

Determined not to overpay, Rio Tinto chief executive Simon Trott and chairman Dominic Barton refused to budge. Their decision to walk away drew praise from Australian investors, some of whom had been worried about the risk of the mining giant spending too much for Glencore’s business.

“We think it was positive that Rio held their ground on valuation,” said John Ayoub, portfolio manager at Wilson Asset Management, which owns shares in the company.

“Ultimately, Rio has the better portfolio and cash generation.”

The proposed tie-up with Glencore had been touted as a way for Rio Tinto to boost its supplies of copper, which has become one of the most sought-after metals of the clean energy transition as a vital building block for renewable energy, electric car batteries and transmission lines. The deal would have been the largest in a series of attempted copper-focused takeovers to sweep the mining sector in the past two years, including a failed push by top Australian miner BHP to acquire Anglo American.

While the merits of merging Rio Tinto and Glencore’s copper assets were widely acknowledged by investors, diluting Rio Tinto’s portfolio for the “sake of synergies and more copper growth couldn’t come at a cost of control”, Ayoub said.

“We feel that Simon Trott has passed his first test as CEO, especially when it came to his messaging around a disciplined capital management approach,” he said.

Rio Tinto, whose shares are dual-listed in Australia and the United Kingdom, had until February 5 under the UK’s strict takeover rules to declare its intention to make a formal bid for Glencore, gain an extension to negotiations, or walk away.

It is the second round of failed discussions in just over a year, following an earlier approach by Glencore in late 2024. Talks late last year were also initiated by Glencore, according to a source familiar with the matter.

Glencore’s shares lost 7 per cent following the news, while Rio Tinto’s London-listed shares lost 2.6 per cent. However, Rio Tinto shares have risen 0.6 per cent in early trade in Australia.

Although transition metal copper was an obvious motivation for a deal, Rio Tinto was seeking to acquire Glencore in its entirety, including its coal assets and marketing business.

“We concluded that the proposed acquisition … does not reflect our view on long-term, through the cycle relative value, including not adequately valuing our copper business, and its leading growth pipeline,” Glencore said in a statement.

Global copper demand is expected to rise 50 per cent by 2040, benefiting from the energy transition and artificial intelligence demand, and global miners are racing to bulk up.

Macquarie analysts on Friday said it was clear that Rio Tinto wanted greater copper exposure by acquiring Glencore’s pipeline of projects, but the unification posed “several key questions” from the outset. These included whether Rio Tinto investors would want to add Glencore’s extensive coal assets to the company’s fossil fuel-free portfolio.

“Investing in coal was viewed as a key deviation from strategy that Rio may need to explain after the fact,” they said.

Analysts at HSBC had estimated an average deal premium of 30 per cent, which would have given Glencore’s shareholders 38 per cent of a combined company.

The companies did not reveal the terms proposed and rejected.

“It is possible that the two companies re-engage at some point in the future, but that is not our base case,” said Jefferies analyst Christopher LaFemina, adding that Rio would most likely go it alone.

“There are various ways for Glencore to unlock value, but getting acquired at a premium in an all-share deal to form a combined company that could have been the ‘go-to’ stock in the sector would have been the simplest and most elegant path to a significantly higher share price,” he said.

With Reuters

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