Potential Rio Tinto-Glencore merger ‘a clash of cultures’

Combining Glencore’s aggressive trader culture with Rio’s more conservative approach would be one problem of the mega merger. Then there is the question of what to do about coal.

While shareholders could see substantial synergies from combining head office and administrative functions, they also saw potential difficulties in combining the two companies.

Rio Tinto and Glencore would face a clash of cultures if they pushed ahead with a merger that creates the world’s biggest mining group, analysts have said in the wake of reports of amalgamation talks.

Shares in the two FTSE 100 companies rose modestly as dealers reacted to reports by Bloomberg on Thursday night that they had held merger discussions late last year.

While shareholders could see substantial synergies from combining head office and administrative functions, they also saw potential difficulties in combining Glencore’s aggressive trader culture with Rio’s more conservative approach.

One immediate question would be what to do about coal.

Glencore last August announced plans to retain its coalmining operations after overwhelming support from shareholders, while Rio has made environmental capital out of its decision in 2018 to ditch all coal assets.

Richard Hatch, a mining analyst at Berenberg, said: “The cultures of the two businesses are quite different, with Rio a significantly more conservative entity than the more aggressive, trader-like mentality of Glencore.”

He said Glencore’s appetite for operating in difficult countries could pose problems. “Glencore has operations in some higher geopolitical risk jurisdictions, like Kazakhstan and the Democratic Republic of Congo, which we think may well be unpalatable to Rio’s lower geopolitical risk strategy.”

Rio is seen as more cautious after it destroyed a 46,000-year-old Aboriginal site in Australia in 2020 in an episode that triggered international condemnation and led to the sacking of its chief executive, Jean-Sébastien Jacques. His successor, Jakob Stausholm, 57, has repeatedly expressed scepticism about the benefits of large-scale acquisitions.

A combined group could be valued at $158 billion, making it the biggest miner in the world, toppling BHP, which is valued at $126 billion, from the top spot. It would employ more than 200,000 people and have a large position in markets ranging from iron ore and copper to bauxite and zinc.

Rio Tinto, whose last large deal was the $38 billion acquisition of Alcan in 2007, has been open to more modest dealmaking, buying Arcadium, the United States-listed lithium producer, for $6.7 billion last year as it sought to gain more exposure to the shift by carmakers to battery power.

It rejected two takeover approaches from Glencore in 2014 and also rejected an approach from BHP in 2007. Glencore is also no stranger to growth through acquisition, digesting Xstrata in a £39 billion deal in 2012.

Last May BHP walked away from a $49 billion bid to acquire Anglo-American after it was rebuffed three times. The six-month freeze on BHP making another approach under UK takeover rules expired in late November and has raised speculation that a new deal may be under consideration.

Any deal of this size could be a bonanza for advisers. Rio has used Goldman Sachs, JP Morgan and Linklaters in the past, while Glencore tends to bring in expertise on a more ad hoc basis and has in-house firepower.

A combined business could harness Glencore’s expertise in marketing and Rio’s better record in project managing, Hatch said, adding: “However, given the challenges, we do not, at this point, think that a merger deal is likely, and think that Rio would likely be reticent to pay a meaningful premium.” Rio was also still digesting Arcadium and “will have its hands full in terms of projects”.

Neither company would comment. Rio Tinto shares rose 109½p, or 2.2 per cent, to £50.41 at the close. Glencore was up 10p, or 2.7 per cent, to 380¼p. Anglo also rose, up 88p, or 3.6 per cent, to £25.48.

Rio would still need a lot of convincing

That’s mining for you. Dig around long enough and even old merger ideas resurface (Alistair Osborne writes). Rewind to 2014 and Glencore’s boss at the time, Ivan Glasenberg, was demonstrating the chutzpah for which he was renowned: calling up Rio Tinto’s chairman Jan du Plessis to suggest he bought the business.

The conversation, by all accounts, was predictably short. Glencore was the smaller company, as it is now. And there are only so many ways even a gabby trader like Glasenberg could propose that Rio hand over its prize iron ore mines for a nil-premium at a cyclical low in the commodity price.

Eleven years on, much has changed, not least with the green energy transition turning copper into the hot commodity all miners want. Yet, despite Bloomberg reports that the pair had another go at “early stage” merger talks late last year, putting these two companies together looks as complex as ever.

True, the market did not dismiss the idea out of hand, with the share prices of both companies rising: Rio’s London-listed stock ticked up 2.2 per cent on Friday to £50.41, with Glencore up 2.7 per cent to 380¼p. And the backdrop is a consolidating mining industry, even if BHP proved last year how tough it is to pull off a big deal, with a cack-handed £39 billion all-share bid for Anglo American, built on an unworkable structure.

Still, making RioGlen happen would be quite some operation. Today, Rio is valued at about £88 billion, almost twice Glencore’s £47 billion. So even if the smaller miner — where Glasenberg still holds a stake of about 10 per cent — wanted a deal, Rio would be calling the shots. And last year, in the wake of BHP’s tilt at Anglo, the Rio boss Jakob Stausholm made it pretty clear what he thought of mega mining deals.

“There’s a big risk when you do major M&A, not just in the acquisition itself, but it can derail the whole company,” he said. So he’d need a lot of convincing, particularly with Rio steeped in the risks of destructive deals, having blown $37 billion on Alcan in 2007 at the wrong time in the cycle. Last year’s $6.7 billion lithium buy looks much more his thing.

The acquisition currency would be an issue, too, as Rio has a dual-listed structure, split between the plc and Rio Tinto Ltd in Australia. Making an all-share deal work is no slam dunk, even if around £63 billion of Rio’s value is in the plc.

Then there’s what Berenberg called the “quite different” cultures of the two groups. Glencore’s is the swashbuckling, deal-doing sort, even if its boss Gary Nagle has cleaned up its racier antics. Rio is far more conservative and no obvious owner of Glencore’s trading wing. On top, Rio got out of coal, selling some of its assets to Glencore. Yet Glencore comes with tonnes of the stuff, not only its biggest earner during the post-Ukraine energy crisis but now topped up with the extra steelmaking sort bought from Canada’s Teck Resources.

Sure, Glencore would bring trophy copper assets, not least in South America, but those in the Democratic Republic of Congo come with the sort of geopolitical risk Rio has long eschewed. And, apart from the competition issues, including in China, it’s hard to spot meaningful synergies. This is no easy deal to unearth.

The Sunday Times