Here's What We Know About The Speculation Glencore Is Eyeing Off A Rio Tinto Takeover

Image: Glencore.

There’s talk about Rio Tinto being a takeover target for Glencore. Here’s what we know.

Journalist James Chessell over at the AFR today reported Rio has made its way onto Glencore boss Ivan Glasenberg’s wish list but that any takeover attempt by the Swiss giant of Rio would “blindside” the market.

The speculation appears to have emerged from a note by Wall Street broker Berstein Research which listed a Rio/Glencore deal in a report as one which makes sense because Rio, with some of the lowest cost iron ore operations in Australia, is cheap.

Glasenberg has a track record of buying big assets at the bottom of the market when others are focusing on firming up shareholder returns and shedding assets. He then has his management team get the operations into shape before the market swings around.

That’s what Glencore has been doing since its Xstrata takeover in 2013 and the $US1.35 billion acquisition of African oil and gas explorer Caracal earlier this year.

Glasenberg has also previously spoken about synergies between the two companies, in particular around their coal assets in the New South Wales Hunter Valley.

At the company’s preliminary results presentation in March Glasenberg was asked about a possible joint venture between Rio Tinto and Glencore. Rio Tinto owns the Mount Thorley Warkworth coal mine which is adjacent to Glencore’s Bulga operations in the area.

“It’s clear, everyone knows it in the Hunter Valley there’s a lot of synergies between us and Rio Tinto in their Hunter Valley assets. There’s a lot to be done. We can get substantial synergies,” he said.

“We’re talking to Rio Tinto but it takes time for both sides to assess each other’s assets. But it’s something we look at. We’ve been talking to them for a long time. How far we’ll get and how soon we can reach an agreement, I don’t know. But it’s something that clearly makes a lot of economic sense.”

However, with Glencore tapping the Australian debt market for about half a billion dollars last week there could be something going on, even if it isn’t as big as a Rio deal. Glencore has previously been touted as the front-runner to snap up BHP Billiton’s Nickel West assets.

Pengana Capital fund manager Tim Schroeders told the AFR Rio would definitely be on Glasenberg’s radar but it’s unlikely he’d make a play just yet because of the market cap differences. Rio has an estimated market cap of about $109.2 billion compared to Glencore’s £47.1 billion ($AU84.3 billion).

“Where the two companies currently sit market cap wise, I doubt whether Glencore would be that aggressive,” Schroeders said.

The Xstrata acquisition transformed Glencore from a trading firm into an end-to-end producer but a Rio deal could further diversify its portfolio.

“They would love to be in iron ore longer term without spending the significant capital needed for a greenfields development,” Schroeders said.

To the point that it’s still all talk are the possible regulatory hurdles, and Glencore’s lack of announcement, which would need to be jumped for such a deal to be finalised.

Business Insider has contacted Glencore but they declined to comment. Rio Tinto had not responded at the time of publication. We’ll let you know if we hear anything.

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