Rio Tinto scraps $300b mega-merger with Glencore amid a chasm in takeover premium expectations

Rio Tinto is walking away from a $300 billion-plus deal to acquire Glencore following a month of tense negotiations that appeared to be doomed from the start.

Rio overnight said it would not make a formal offer for its smaller rival, marking the fourth time in less than 20 years that the two mining giants have tried and failed to merge.

The gap in expectations between Rio and Glencore’s shareholders appeared to be too wide from the outset of the latest talks.

Glencore’s stock rose sharply after news of merger talks broke last month, signalling that its investors were expecting Rio to offer a takeover premium.

But many of Rio’s major backers, including Australian-based Wilson Asset Management, did not want such a premium on the table.

“Rio has the best assets in the world, and Glencore shareholders will get access to those and they’ll get to enjoy the cash flow that the Pilbara iron ore provides,” WAM portfolio manager John Ayoub told The West last month.

“For Rio shareholders, we will get copper synergies and the trading and marketing expertise. So there’s a little bit there for both sides.

“But this needs to be a merger, not a takeover. No premium can be paid whatsoever or else the deal doesn’t make sense for Rio shareholders.”

Glencore was seeking a share-exchange ratio that would have given its own investors about 40 per cent of the combined company, according to people familiar with the matter.

Rio walked away after it was unable to justify the premium that implied, and the smaller company was unwilling to adjust its position, some of the people said.

Both companies declined to comment on the details of the talks.

“Rio Tinto has determined that it could not reach an agreement that would deliver value to its shareholders,” the company said in a statement.

Glencore shares plunged as much as 11 per cent. The company said in a separate statement that it has a strong standalone case and remains focused on delivering its own priorities.

Rio had sought to retain both the chairman and chief executive roles without offering a large enough premium, Glencore said. Under UK rules, Rio won’t be able to pursue the company for at least six months, except in specific circumstances.

The idea of a combination of the two companies has been discussed several times over more than a decade. It was first floated before the global financial crisis of 2008, and then revived in 2014 — when Rio quickly rejected an informal approach from Glencore — before conversations resumed in earnest in 2024.

Those talks floundered over Rio’s unwillingness to pay a big premium, as well as differences in management cultures. The most recent negotiations — confirmed on January 8 after a report by the Financial Times — brought the sides closer than ever to a deal, but they remained at loggerheads over the valuation of Glencore’s sprawling mining and trading business.

The deal would have allowed Rio to roughly double its existing copper output, potentially establishing it as the world’s top producer as prices trade near record highs. It would have also added about one million tonnes of future copper growth into its portfolio.

Glencore has faced scrutiny from investors over its copper strategy after a series of production setbacks that have fuelled a 40 per cent decline in output since a peak in 2014. The company has historically avoided investing in new mines, but chief executive Gary Nagle told investors in December that “now is the time to sanction these projects”.

“We see a greater possibility that Glencore remains active on the M&A front,” said Jefferies analyst Chris LaFemina.

“In the meantime, we expect management to refocus its efforts on growing copper production.”

With additional reporting from Bloomberg