Rio Won’t Say ‘Yes’ to Glencore Without 30% Premium: Ex-BHP Exec
2014-10-12 03:07:41.782 GMT
By Michael Heath
Oct. 12 (Bloomberg) -- Rio Tinto Group shareholders would
demand a premium of as much as 30 percent in any deal with
Glencore Plc, making a tie-up unlikely due to a lack of
synergies, said Alberto Calderon, a former BHP Billiton Ltd.
executive.
“The issue is mergers of mining companies generally don’t
have synergies,” Calderon, a board member of Orica Ltd., told
channel 9’s Financial Review Sunday. “The only way you have
synergies is when you have overlapping operations like BHP and
Rio had at the Pilbara. This is not the case here. I don’t think
Glencore could afford to pay that premium.”
The Glencore deal with Rio Tinto would have been the
industry’s largest. It would create the biggest mining company,
worth more than $160 billion, and usurp BHP Billiton, with
significant production of coal, iron ore and copper. Glencore
abandoned the bid on Oct. 7 after it was rebuffed by Rio Tinto.
“In terms of a merger of equals, is it good for Glencore?
It’s pretty fantastic,” Calderon said. “Is it good for Rio
Tinto shareholders? It’s unlikely. They have the better assets.
So they’re going to demand a premium of about 25 or 30 percent.
And that’s synergies of about $25 billion, and so the short
answer is that’s very unlikely. This merger would not even come
close to creating that value.”
With about $6 billion of his personal wealth tied up in
Glencore stock, Chief Executive Officer Ivan Glasenberg tends to
be cautious about overpaying for targets. His company paid a
premium of 10 percent or less in about two-thirds of the deals
it carried out over the past decade, according to data compiled
by Bloomberg.
Iron-Ore Slump
A slump in iron ore gave Glencore a chance to go after a
cheaper Rio and make it part of a diversified portfolio. With
the deal now likely on hold for six months, Glencore could turn
to other targets such as Fortescue Metals Group Ltd. Or Rio
could pursue a defensive deal with a company such as Anglo
American Plc, according to Sanford C. Bernstein & Co.
Asked about Glencore’s options, and where Glasenberg might
now train his sights, Calderon said: “The only thing that is
clear” is that Glasenberg is always ahead of the market.
“I think this is part of a broader strategy,” he said.
“We don’t know which one, nobody knows what he’s really
thinking. But he’s thinking ahead of the market. He’s thinking
about growth. He’s the only one of the large miners that doesn’t
talk only about cost-cutting and so it must be something beyond
this.”
For Related News and Information:
Top Economic Stories:TOP ECO<GO>
Global Statistics: STAT<GO>
Central Bank: NSE RESERVE BANK OF AUSTRALIA <GO>
To contact the reporter on this story:
Michael Heath in Sydney at +61-2-9777-1202 or
mheath1@bloomberg.net
To contact the editors responsible for this story:
Stanley James at +852-29776637 or
sjames8@bloomberg.net
Jim McDonald, Greg Ahlstrand
2014-10-12 03:07:41.782 GMT
By Michael Heath
Oct. 12 (Bloomberg) -- Rio Tinto Group shareholders would
demand a premium of as much as 30 percent in any deal with
Glencore Plc, making a tie-up unlikely due to a lack of
synergies, said Alberto Calderon, a former BHP Billiton Ltd.
executive.
“The issue is mergers of mining companies generally don’t
have synergies,” Calderon, a board member of Orica Ltd., told
channel 9’s Financial Review Sunday. “The only way you have
synergies is when you have overlapping operations like BHP and
Rio had at the Pilbara. This is not the case here. I don’t think
Glencore could afford to pay that premium.”
The Glencore deal with Rio Tinto would have been the
industry’s largest. It would create the biggest mining company,
worth more than $160 billion, and usurp BHP Billiton, with
significant production of coal, iron ore and copper. Glencore
abandoned the bid on Oct. 7 after it was rebuffed by Rio Tinto.
“In terms of a merger of equals, is it good for Glencore?
It’s pretty fantastic,” Calderon said. “Is it good for Rio
Tinto shareholders? It’s unlikely. They have the better assets.
So they’re going to demand a premium of about 25 or 30 percent.
And that’s synergies of about $25 billion, and so the short
answer is that’s very unlikely. This merger would not even come
close to creating that value.”
With about $6 billion of his personal wealth tied up in
Glencore stock, Chief Executive Officer Ivan Glasenberg tends to
be cautious about overpaying for targets. His company paid a
premium of 10 percent or less in about two-thirds of the deals
it carried out over the past decade, according to data compiled
by Bloomberg.
Iron-Ore Slump
A slump in iron ore gave Glencore a chance to go after a
cheaper Rio and make it part of a diversified portfolio. With
the deal now likely on hold for six months, Glencore could turn
to other targets such as Fortescue Metals Group Ltd. Or Rio
could pursue a defensive deal with a company such as Anglo
American Plc, according to Sanford C. Bernstein & Co.
Asked about Glencore’s options, and where Glasenberg might
now train his sights, Calderon said: “The only thing that is
clear” is that Glasenberg is always ahead of the market.
“I think this is part of a broader strategy,” he said.
“We don’t know which one, nobody knows what he’s really
thinking. But he’s thinking ahead of the market. He’s thinking
about growth. He’s the only one of the large miners that doesn’t
talk only about cost-cutting and so it must be something beyond
this.”
For Related News and Information:
Top Economic Stories:TOP ECO<GO>
Global Statistics: STAT<GO>
Central Bank: NSE RESERVE BANK OF AUSTRALIA <GO>
To contact the reporter on this story:
Michael Heath in Sydney at +61-2-9777-1202 or
mheath1@bloomberg.net
To contact the editors responsible for this story:
Stanley James at +852-29776637 or
sjames8@bloomberg.net
Jim McDonald, Greg Ahlstrand