Talks to create the world’s largest mining company have fallen apart after Rio Tinto and Glencore couldn’t reach an agreement on valuation.
Glencore wrote in a statement yesterday: “We concluded that the proposed acquisition on these terms is not in the best interests of Glencore shareholders.
“It 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, and apportioning material synergy value potential.”
Glencore added that: “Glencore’s standalone investment case is strong.”
Glencore and Rio Tinto have been here before, and it’s likely this won’t be the last we hear of merger plans. The mining sector is going through a wave of M&A activity, and the temptation of creating a mining powerhouse rivalled by no other may be too much for executives to ignore once the dust settles.
“Rio Tinto’s courtship of Glencore is over after Rio declined to request an extension or make a formal play for some or all of Glencore’s assets in the time allotted by the UK takeover code,” said Derren Nathan, head of equity research, Hargreaves Lansdown.
“A diverse set of mining properties and significant synergies made for an attractive combination on paper, but as with all relationships, there’s no set formula for chemistry, and the gaps between the two parties have been too big to reconcile.
“Just how Glencore’s coal and trading arms fit in with Rio’s business model, and push for improved sustainability credentials, were amongst the issues to address, but the more fundamental questions of valuation and who holds the remote control have been the main points of disagreement.”
News that talks ended broke yesterday, sending Glencore shares sharply lower just before the close. Glencore shares were lower again on Friday.