AUSTRALIAN investors in Rio Tinto have welcomed the miner’s decision to abandon merger negotiations with Glencore, saying the company must now demonstrate the value of its standalone strategy, said Reuters.
Rio announced on Thursday that talks had ended after the parties failed to reach terms delivering adequate shareholder value. The proposed combination would have formed the world’s largest mining company with a market capitalisation exceeding $200bn.
Investors had feared Rio might overpay for Glencore to expand its copper operations. Reuters reported that Glencore sought a 40% stake in the merged entity.
“This is positive that Rio appears to be disciplined in not overpaying,” said Andy Forster, senior investment officer at Argo Investments. “It would have created a few years of complexity and uncertainty getting the deal done and integrated.”
Rio’s Australian-listed shares climbed as much as 2.6% to a record high before settling around one percent higher.
John Ayoub, portfolio manager at Wilson Asset Management, praised the outcome, said Reuters. “This reinforces Rio’s disciplined approach to capital management,” he said. “We are very pleased to see Simon Trott pass his first test in the seat,” he told the newswire.
Trott, who became CEO in August, has pledged to make Rio “stronger, sharper and simpler” by concentrating on core assets.
Hugh Dive, chief investment officer at Atlas Funds Management, said the Glencore bid contradicted Trott’s strategy. “Miners have a terrible long-term track record for mega mergers,” he told Reuters.
