Jesse Riseborough London
When Glencore chief executive Ivan Glasenberg pitched his vision of creating the world’s biggest miner to Rio Tinto Group last year, it’s unlikely he foresaw a commodity market rout of this magnitude coming.
Glencore’s stock slumped to a record low yesterday as copper prices dropped to the lowest since 2009. As a result, the 58-year-old billionaire’s firepower for what would likely be an all-share offer is diminishing.
The dive has widened the company’s underperformance since the spurned takeover approach was revealed in October – Glencore is down 29 percent, Rio just 7.1 percent – meaning Glasenberg, who’s personally the business’s second-largest shareholder, would have to offer more equity to win his prize.
“Glencore acquiring Rio Tinto in this environment would be extraordinarily difficult,” Chris LaFemina, an analyst at Jefferies, said yesterday.
“It was going to be extraordinarily difficult anyway, but I don’t know that it’s even possible in this environment. Glencore is just not in a position of strength right now relative to Rio.”
Copper is the biggest earnings driver for Glencore, contributing about 45 percent of its earnings before interest, tax, depreciation and amortisation, according to Liberum Capital.
Rio’s always been a bigger company than Glencore, but the gap in market value has widened considerably. In October, Glencore was worth about $68 billion (R783bn) compared with Rio’s $85bn. The figures now are $49bn and $80bn.
“Ivan will have to absolutely think twice before bidding for Rio,” Paul Gait, a mining analyst at Sanford C Bernstein in London, said on Wednesday. “It makes it a harder deal to do. He will have to issue more Glencore shares to pick up the Rio paper, he’ll be more diluted and his shareholders also won’t like it so much.” Glencore and Rio Tinto declined to comment.
Copper’s slide follows steeper drops in coal, oil and iron ore and makes it the “last domino” to fall in a broader commodity market decline. – Bloomberg