(Bloomberg) — The shackles keeping Glencore Plc Chief Executive Officer Ivan Glasenberg from grabbing control of the world’s second-biggest mining company will be removed next week when a U.K. takeover rule barring a hostile offer expires.
The financial restraints, though, remain. Glencore’s stock has slumped since Bloomberg reported six months ago it was preparing a bid for Rio Tinto Group. It would have been the largest mining deal in history, creating a company worth about $160 billion.
While both companies are weathering a rout in commodities that sent prices tumbling, Glencore is down 15 percent since its approach was revealed in October. That compares with 6 percent drop in Rio, giving it a market value about 14 billion pounds ($21 billion) more than its rival.
“The share-price moves have not gone in Glencore’s favor yet,” said Richard Knights, a London-bas
ed mining analyst at Liberum Capital Ltd.
Glencore’s stock plummeted to a record in January as the price of copper fell to the lowest since 2009. That weakens the Swiss commodity trader’s firepower for what would probably be an all-share offer.
After its approach was revealed, Glencore said it was no longer actively considering an offer, effectively barring it from bidding for six months under U.K. takeover rules. With that ban lifted next week, some have pondered whether Glencore would revisit the idea.
Rejected Approach
Rio rejected Glencore’s approach after taking it to the board in August and Chief Executive Officer Sam Walsh declared in December the two were “totally different organizations.” Rio announced a $2 billion share buyback in February when it reported a 9 percent decline in underlying profit for 2014.
Glencore traded at 284.1 pence on Wednesday in London, valuing the Baar, Switzerland-based company at 37.1 billion pounds. Rio was valued at 51.6 billion pounds.
Buying Rio would add its iron-ore mining hub in Western Australia as well as copper, coal and aluminum assets to Glencore’s global commodity-trading and mining operations. That would catapult Glencore from a minnow in the trade to owner of one of the most profitable mining operations on the planet in the Pilbara mine, port and rail hub in Australia.
Iron Ore
Rio, based in London, sold $23 billion of iron ore last year, accounting for about 81 percent of its net income. Still, prices for the steelmaking raw material fell below $50 a metric ton on Wednesday, the lowest in 10 years, signaling lower profit ahead from the commodity. Rio’s underlying earnings from iron ore dropped 18 percent, or $3.2 billion, last year.
A combination of the two would top Rio’s purchase of Alcan Inc. for about $38 billion in 2008 as the largest mining deal. Glencore bought Xstrata Plc for $29 billion in shares in 2013.
“At the end of the day it will of course be driven by value,” Rio’s Walsh said in a December interview. “Clearly when you consider this there will be a whole raft of things that you look at in terms of our business and their business.”
Glasenberg declined to comment on Rio Tinto on a March call with reporters. Glencore reported a 6.5 percent decline in adjusted net income to $4.29 billion in 2014.
Both companies declined to comment for this story.
