Australian investors in Rio Tinto have expressed approval of the mining giant’s choice to terminate merger discussions with Glencore. They now expect the company to deliver on its newly emphasised strategy.
The merger, originally proposed in January, aimed to form the world’s largest mining company with a market value exceeding $200 billion. On Thursday, Rio Tinto stated that an agreement could not be reached as the deal did not offer adequate value to shareholders.
Although specific bid details were not disclosed, Rio’s stakeholders worried that the company’s efforts to expand its copper business might lead to overpaying for a deal with Glencore. Sources indicated that Glencore wanted its shareholders to own 40% of the combined entity.
“This is encouraging because Rio seems committed to avoiding overpayment,” noted Andy Forster, senior investment officer at Argo Investments. “Finalising and integrating the merger would have brought several years of complexity and uncertainty.”
Shares of Rio Tinto listed in Australia climbed by as much as 2.6% to reach an all-time high during early trading, before settling up approximately 1%. Meanwhile, the S&P/ASX200 .AXJO declined by 2%.
“This highlights Rio’s prudent approach to managing capital. We’re very pleased to see Simon Trott succeed in his first major challenge,” said John Ayoub, portfolio manager at Wilson Asset Management and shareholder in Rio, referencing the CEO who assumed his role last August.
“In the end, it would likely have been a neutral merger with no premium, but not at the acquisition values Glencore shareholders expected,” he added, suggesting that Rio should now prioritise its current pipeline of growth projects.
Under his leadership, Trott stated that Rio Tinto would grow “stronger, sharper and simpler” as he focused on core assets.
According to Hugh Dive, chief investment officer of Atlas Funds Management (another Rio Tinto investor), the Glencore proposal was “the exact opposite” of Trott’s stated strategy.
“Historically, miners have a poor record with massive mergers,” Dive remarked.
“It’s probably fortunate for Rio to avoid this deal, but it also indicates management’s renewed appetite for pursuing significant acquisitions.”
