Glencore chief executive Ivan Glasenberg’s second attempt to force a merger with Rio Tinto will involve an attack on Sam Walsh over dwindling hopes of substantial capital returns, as he tries to win the support of Rio’s biggest shareholder, Chinese giant Chinalco, by promising to sell key assets Oyu Tolgoi and Simandou.
That’s the view of Bernstein’s London-based senior analyst Paul Gait, who predicted Glencore would make a move on Rio in September, a month before Rio confirmed the approach.
That $190 billion merger approach was rebuffed, and under British law Glencore must wait until April to make another attempt. Mr Gait expects Mr Glasenberg will waste little time. “Is he coming back? In my view, yes,” Mr Gait said from London.
Mr Gait told The Australian Financial Review Glencore’s shock announcement that it would shut down its Australian coal operations for three weeks was a strong indication Mr Glasenberg would try again for Rio. He said Mr Glasenberg would be able to point to Glencore’s willingness to pull tonnes out of an oversupplied market in a direct challenge to Rio over its expansion in iron ore.
“To me this coal announcement is clearly Ivan playing games,” Mr Gait said. “It had the language of someone trying to make his credentials on managing the market as a CEO. It’s a shot across the bows to Rio.”
Mr Glasenberg has lashed out repeatedly at the expansion strategies being used by Rio and its ¬fellow iron ore giants, and their price impact, as part of his attempt to pitch the merger.
Mr Gait believes Mr Glasenberg would retain an Australian listing for the merged entity and preserve its listing in London.
Keeping the Australian listing would help with its pitch to FIRB, while Mr Glasenberg would also make sure Western Australia supported a merger.
The starting point would be all-scrip, zero premium “merger of equals”, and Mr Glasenberg wouldn’t go higher than a 10 to 20 per cent premium, he said.
That view is supported by reports out of London, where Bloomberg said former JPMorgan Chase dealmaker Ian Hannam, who now runs a boutique advisory firm, brought representatives of more than 20 investors to together to discuss the deal.
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