Theme of the Day: Rio Tinto, Glencore scrap $260bn mega-merger

In a statement on Thursday, Rio Tinto said it was no longer considering a merger or other business combination with Glencore after determining it could not reach an agreement that would deliver sufficient value to its shareholders. Despite a strong incentive to scale up amid a global scramble for copper, which is integral to powering the AI boom. After weeks of discussions, the companies failed to agree on governance and ownership of the combined group. Rio proposed retaining both the chair and CEO roles for pro forma control of the merged entity. Glencore said those conditions materially undervalued its copper business and its overall contribution, making the deal unattractive for its shareholders. “Price and governance disagreements were at the heart of the breakdown,” analysts at Jefferies wrote in a note. “While a future re-engagement is possible, our base case is that Rio will focus on its standalone strategy.” The market reacted swiftly. Glencore shares fell nearly 8% in London trading, while Rio Tinto declined about 2.5%. The Swiss miner and commodities trader was seeking a share-exchange ratio that would have given its investors about 40% of the combined company, Bloomberg reported. Had the deal gone ahead, the combined group would have emerged as the world’s largest copper producer, accounting for about 7% of global output, alongside dominant positions in iron ore, coal and other key commodities. Rio, which generates most of its profit from iron ore, has been working to strengthen its copper portfolio through projects such as the Resolution Mine in Arizona. The collapse marks the third failed attempt at a tie-up between the two miners. Talks in 2014 and then again in late 2024 collapsed over valuation concerns, Rio’s reluctance to pay a significant premium and sharp differences in corporate culture and governance. During those discussions, Glencore had pushed for its chief executive, Gary Nagle, to lead the combined company. Subsequent leadership changes did little to reset the dynamic. Rio is now led by chief executive Simon Trott and chaired by Dominic Barton, seen as more open to dealmaking, while Nagle has repeatedly described a Rio-Glencore merger as the “most obvious” deal in mining. Part of the urgency behind the most recent Rio-Glencore talks is the wave of consolidation sweeping across the sector as miners scramble to secure more copper. London’s Anglo American and Teck Resources of Canada are planning a $75bn combination in a deal that is expected to close later this year.  Rival miner BHP, also on the hunt for copper, has made four failed bids to acquire Anglo over the past two years. One reason miners need more scale is that the giant copper projects they are building are more expensive than ever before. You need scale to take on that risk. Analysts are also questioning whether rival BHP could now swoop in for Glencore. The two companies held deal talks as recently as 2022, which envisioned spinning out Glencore’s coal assets. Another possibility is that Rio and Glencore could get together again, after a six-month mandatory cool-off period.