Ten years of effort "coming close but falling short," Glencore and Rio Tinto's "Mining Century Merger" ultimately did not succeed.

Glencore and Rio Tinto’s decade-long mining merger dream ultimately shattered.

According to Bloomberg, on February 5th local time, negotiations between Glencore and Rio Tinto completely broke down. Glencore insisted on holding a 40% stake in the merged company, while Rio Tinto executives ultimately realized that extending negotiations would be a waste of time and decided to terminate the deal.

The failure of this deal represents a significant setback for both parties. Over the past ten years, Glencore’s copper production has decreased by more than 40%, and it has been trying to convince investors that its business has been transformed. Meanwhile, Rio hoped to use this opportunity to reduce its over-reliance on the iron ore market.

After the deal fell through, Glencore’s ADR stock price plummeted over 6% on the same day, prompting investors to question whether it can develop its copper business independently.

Last 24 Hours Collapse

According to Bloomberg, Rio Tinto hired advisors led by veteran UK dealmaker Simon Robey from Evercore, along with JPMorgan and Macquarie Group.

The report notes that Glencore brought in senior dealmaker Michael Klein, who previously worked with it during the failed 2023 acquisition of Teck Resources.

Klein’s core task was to communicate Glencore’s business value to Rio Tinto executives, and Glencore founder Glasenberg, as the company’s largest shareholder, became more actively involved as the deadline approached, partly to allay Rio’s concerns about his reluctance to reach an agreement.

But 24 hours before the deadline, the situation suddenly worsened. Rio Tinto internally became increasingly aware that Glencore and Glasenberg would not make many concessions on the 40% stake requirement.

On Glencore’s side, they were frustrated that Rio Tinto linked the bid to the stock price on the day of the announcement. Glencore believed that this arbitrary ratio did not reflect the past and future performance of the two companies.

More than six informed sources interviewed by Bloomberg revealed that during negotiations on Thursday morning, Rio Tinto still hoped Glencore would show willingness to lower its bid. Glencore CEO Nagle and Rio CEO Trott held two calls attempting to break the deadlock.

But as the deadline approached, it was clear that postponement was pointless. During their last call, Nagle and Trott discussed how to announce the deal’s collapse to investors.

Under UK rules, unless a competing bidder emerges or Glencore formally requests to restart negotiations, both parties cannot negotiate again for at least six months.

Negotiation Process and Dispute Focus

Glencore CEO Gary Nagle laid the groundwork for negotiations last summer.

He informally approached Simon Trott, a senior executive who had just taken over as Rio CEO. After Trott became familiar with his new role, the two officially started negotiations in December, with Rio Chairman Dom Barton playing a leading role.

These secret negotiations ended in early January, when the Financial Times first reported that talks were underway. This started the countdown: under UK takeover rules, Rio must make a bid, withdraw, or seek an extension by 5 pm London time on February 5th.

In the early stages, the leaders of both companies largely stayed out of the process. Rio’s deal team and advisors made multiple visits to Glencore’s headquarters in Switzerland for due diligence. This was a daunting task, as Glencore’s operations are extremely complex, covering mines, smelters, refineries, as well as extensive trading and logistics businesses.

As due diligence progressed, both sides believed that given the workload, an extension was likely. No red flags were found during due diligence, but the key sticking point was the price Rio was willing to pay. Both sides aimed to submit a takeover bid before mid-February, ahead of earnings announcements.

For mining billionaire Ivan Glasenberg, the merger between Glencore and Rio was his most desired deal in over a decade. The founder who transformed Glencore from a commodities trading house into a mining giant had attempted multiple times to facilitate this union.

In the past month, this dream seemed within reach. The two sides initiated their fourth merger negotiation, and almost all participants believed this was the most serious attempt ever. But within less than 24 hours, everything suddenly collapsed.

Strategic Significance of the Deal

This deal holds significant strategic value for both sides.

Over the past ten years, Glencore’s copper production has fallen by more than 40%, and it has been working to convince investors that its business has turned around, coinciding with a surge in the price of this critical industrial metal to historic highs.

Rio Tinto, on the other hand, sees itself as one of the most astute operators in the industry and hopes to unlock growth potential in Glencore’s copper assets through this deal. Without this deal, Rio’s profit outlook would continue to be tied to the iron ore market, which is facing both increased supply and weakening demand.

The merger would make Rio Tinto surpass BHP to become the world’s largest mining company. Glencore’s massive coal and copper operations, along with its trading division, would be integrated with Rio’s giant iron ore business. For Rio, the key is doubling copper output, potentially establishing itself as the world’s largest copper producer and adding 1 million tons of future capacity.

Although previous attempts to merge Glencore’s aggressive mining and trading businesses with Rio’s more conservative corporate culture quickly failed, the rising risk of inaction amid competitors seeking major copper acquisitions makes the opportunity too significant to ignore.

Market Impact and Future Speculation

Glencore’s 7% stock decline highlights the impact of this deal failure on company executives and investors, with analysts beginning to question whether the company can develop its copper business independently.

For Rio Tinto, the continued decline in iron ore prices serves as a reminder of the risks involved in exiting this industry’s largest-ever deal. Industry insiders are quickly shifting focus to whether a competitive bidder will emerge.

RBC Capital Markets analyst Ben Davis stated in an email report:

We have always believed BHP is the most likely to step in. Now BHP has the opportunity to do so, but the challenge lies in explaining to value-focused Australian investors how they can see value in Glencore that Rio does not see.

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