A PROMINENT Australian investor has voiced scepticism regarding Rio Tinto’s proposed acquisition of Glencore, challenging the strategic rationale and timing of the potential tie-up, said Reuters in an article on Thursday.
Mark Freeman, MD of Australian Foundation Investment Company, one of the country’s oldest and largest investors, said Rio Tinto had “a lot of questions the company needs to answer as to how it’s going to create value”.
“A lot of M&A at the top of the market hasn’t created value in the long term. So we’re certainly curious to understand why they think this time it would be different,” he said.
Rio Tinto and Glencore confirmed last week they were discussing a potential merger that could establish the world’s largest mining company valued above $200bn. Neither disclosed whether a takeover premium would apply or who would lead the combined entity.
The proposal has received warmer reception amongst London investors, many holding stakes in both companies, than in Australia, where Rio Tinto commands greater popularity. Australian investors, who control over 20% of dual-listed Rio Tinto’s shares alongside its highly profitable iron ore operations, have expressed concern about potential overpayment.
“There are a lot of scars,” Freeman said, referencing transactions some considered unsuccessful, including BHP’s 2001 Billiton acquisition. “If you’re going to do this, it’s got to create value for Rio shareholders. Not just make the company bigger or more diverse.”
Freeman questioned pursuing Glencore’s copper pipeline whilst metal prices hovered near record levels. “When you’re at the top of the mining boom, there’s a lot of companies that look good,” he added.
AFIC manages approximately A$10.5bn, with BHP representing its largest holding and Rio Tinto ranking eleventh as of 31 December, said Reuters.
