Rio Tinto merger partner Glencore could win Chianlco's support by divesting Oyu Tolgoi and Simandou assets
Glencore would likely seek the support of Rio Tinto’s largest shareholder Chinalco in a renewed merger effort by promising to sell the key Oyu Tolgoi and Simandou assets, the Australian Financial Review reported.
The report said that Paul Gait, a senior analyst at Bernstein, believes Glencore is likely to make a new attempt to merge with Rio Tinto, the Anglo Australian-listed miner.
Gait said Glencore’s recent announcement that it would shut down its Australian coal operations for three weeks is a strong indicator it will make a new approach to Rio. Gait said that the move, showing a willingness to pull tonnes out of a market, represents a direct challenge to Rio’s expansion strategy.
Glencore’s chief executive, Ivan Glasenberg, has frequently spoken against the expansion strategies of Rio and other miners and their price impact, the report said.
Gait said Glencore would likely retain listings in London and Australia for the merged entity. Retaining an ASX listing would help pitch the deal to Australia’s Foreign Investment Review Board, which could be a major obstacle to a deal.
Gait said that a merger is likely to start as an all-scrip zero-premium merger of equals, and Glencore will not pay a premium higher than 10% to 20%.
The report also said Gait believes that winning the support of Rio’s large Chinese investors would be crucial to a deal. In order to appease Chinese investors Glencore could offer to give Chinalco Rio’s stakes in the Oyu Tolgoi project in Mongolia and Guinea’s Simandou.
Source Australian Financial Review