Glencore has long harboured Rio Tinto merger ambitions
Glencore chief executive Ivan Glasenberg has harboured ambitions for a merger with Rio Tinto for at least three years, according to former insiders.
The revelations follow confirmation this week of Glencore's informal approach to Rio Tinto in July, and that Glasenberg held preliminary discussions with Rio Tinto chairman Jan du Plessis about a "merger of equals" which he duly took to the Rio board for consideration.
Rio Tinto yesterday said it had dismissed the proposal which it believed materially undervalued the company, while Glencore announced in London overnight that it "was no longer actively considering" the deal, potentially valued at more than $US160 billion.
Under UK takeover law, that means Glencore cannot pursue the deal for at least six months.
But Rio Tinto is under no illusion that Glasenberg may have abandoned the idea. The Australian Financial Review reports that Rio Tinto has signed Macquarie Group as defence advisors on what it anticipates will be a renewed offer next year.
Glencore is likely to again enlist the services of former Citigroup vice-chairman Michael Klein, if he is not already employed.
Klein took the running on the problematic 2012 merger between Glencore and its offshoot Xstrata, an initially friendly deal that almost ran off the rails following a bitter falling out between Glasenberg and Xstrata boss Mick Davis.
That merger has steeled Glasenberg for his ultimate prize, according to former colleagues.
In 2011, the year he took Glencore public with a listing on the London Stock Exchange, Glasenberg began running numbers on a potential tie-up with Rio Tinto.
No approaches were ever made to Rio but Glasenberg, the driving force behind Glencore's rise to power as a commodity trader and mining group, then pointed to a glaring hole in the company's earnings base – iron ore.
At that stage, Rio Tinto was only just emerging from a near-death experience of its own making after its debt fuelled $US38 billion takeover of US aluminium group Alcan in 2007, trumping a rival offer from Alcoa by more than $US10 billion.
The Alcan takeover was widely interpreted as an attempt to "bulk up" as a defence against overtures from BHP Billiton, which launched a takeover offer in early 2008 but was forced to withdraw as the global financial crisis rendered the transaction uneconomic.
In the ensuing chaos, Rio Tinto embraced Chinese government-backed Chinalco as a potential savour, and it remains the mining giant's biggest investor with a 9.8 per cent stake.
Glencore has reportedly already approached Chinalco. The UK-listed Swiss-based group, which now is the world's fourth biggest mining house after its merger with Xstrata, has good relations in Beijing, after it acceded to Chinese government demands to offload its South American copper business during its 2012 merger.
During the next six months it is likely to begin a campaign canvassing support from London-based institutional investors who hold stock in both Glencore and Rio.
The timing of Glasenberg's overtures is no coincidence. Iron ore prices are in decline which will put Rio's valuation under pressure.
To a large extent, the depressed iron ore market is a phenomenon of Rio's own making. It and BHP are engaged in a program of massive expansions, even as demand from China cools, in a deliberate attempt to sideline smaller higher cost producers, a strategy that may play directly into Glasenberg's hands.
