Rio and Glencore: a marriage made in hell
A copper-fuelled fantasy that would shred shareholder value.
Some mergers, but very few, produce good shareholder outcomes. The overwhelming majority destroy value for one group or another, almost always the acquirer. Then every decade or so there is a merger or takeover that shreds shareholder value faster than a nuclear bomb can level a city. The proposed marriage of Rio Tinto and Glencore, should it proceed, will fall into the latter category. Should it proceed, in my opinion, Rio shareholders will be torched to the point that they'll be begging for the bayonet.
The rationales for this merger made in hell are that it will give Rio shareholders greater exposure to the global bull market in copper and that greater scale will allow the group to seize more opportunities and develop bigger projects.
The first ruse is only true in parts, and depends entirely on everything going Rio's way after it buys the Glencore bag-o-fun. The second is a canard of such grand proportions that it could feed the earth's population for a week. Regarding the second argument, I have seen stilt homes in the fetid swamps of South East Asia with more sound foundations.
The build-a-copper-giant yarn is perhaps the most transparently disingenuous sales spiel since carnival barkers tempted gormless rubes into the tent to see the moustachioed ladies in days of yore. If the board of Rio Tinto is lured by this promise they will become living proof of P.T. Barnum's theorem that there's one born every minute.
