Rio Tinto, desperate to avoid being taken over by Glencore, may buy Freeport McMoRan in a deal that is a “classic defensive move, ” according to Bernstein analyst Paul Gait, as reported by Seeking Alpha.
Although Glencore CEO, Ivan Glasenberg declared at the company’s annual meeting “I have it all, ” he obviously wants more. The combined company would have a fourth of the global market for thermal coal and iron ore, reports FT.com. Such a tie-up would further limit competition in the industry and give the combined entity tremendous pricing power. While international regulators, no doubt, will have their say on such a merger, FT.com speculates that Glasenberg is taking advantage of the global slowdown and lackluster performance of mining stocks lately to make his move. Jonathan Ford of FT writes, “Putting Glencore and Rio together would create a company of Napoleonic scale.” This comes after Glencore’s $80 billion acquisition of Xstrata. Rio Tinto’s iron ore segment alone could add 3.3% to its profit margin or $1.7 billion annually to its operating profit.
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Rio Tinto has rejected Glencore’s bid and may buy Freeport to avoid a hostile takeover. In addition, Freeport would reduce Rio Tinto’s reliance on iron ore in an environment of declining prices for the commodity and increase its exposure to copper. Rio could by Freeport at a bargain, since its shares are at their lowest point in 15 months. Under European rules, Glencore is barred from making an additional bid for Rio for six months.