By Rhiannon Hoyle and Adam Whittaker
A Feb. 5 deadline for Rio Tinto to make a takeover bid for Glencore is approaching. Information about what form a deal could take is limited.
The companies said on Jan. 8 that talks involve a possible combination of some or all of their businesses, including a potential all-share takeover of Glencore by Rio Tinto. A combination could create the world's largest mining company with a market value of more than $200 billion and the industry's biggest copper business, controlling nearly one-tenth of global output.
Here are some of the deal structures being debated by the market:
Buy Now, Divest Later?
Rio Tinto needs to keep any bid as simple as possible.
"Rio Tinto should take the whole business pro forma with no carve-outs required," said RBC Capital Markets analyst Ben Davis. Otherwise, it might open the door to a competing bid from BHP Group, its copper-hungry rival, he said.
The combined group could sell some businesses once any deal is completed. These could be unwanted assets, including in the zinc business.
It could also include any sales needed to get a deal done. Glencore agreed to sell a big copper project in Peru to obtain Chinese regulatory approval for its 2013 acquisition of Xstrata. It sold the project to a Chinese consortium.
Coal: Gone or Gold?
Many investors and analysts expect Glencore's mammoth coal business to be sold soon after a deal is completed.
The rationale: Keeping it could harm the miner's environmental, social and governance, or ESG, credentials and drive some investors away. Rio Tinto sold its last coal assets in 2018.
However, others say: Not so fast.
The market's thinking on coal and ESG has changed in the past few years, CreditSights analysts Wen Li and Shreyas Nampoothiri said. Glencore's production costs versus rivals are what matter most, said Anix Vyas, portfolio manager at Harding Loevner.
"Retaining coal might not be as big an issue as some suggest," said Ninety One portfolio manager George Cheveley. Rio Tinto seems likely to take on Glencore's coal division to get any deal done, he said.
Cheveley said an option could be to spin out only Glencore's thermal-coal operations, and keep pits that produce metallurgical coal, used in steelmaking. Those could complement Rio Tinto's lucrative iron-ore business. BHP owns both iron-ore and steelmaking-coal mines.
Divide and Conquer?
Some analysts wonder whether the companies' iron-ore and coal assets might be separated from their metals and trading businesses into a so-called yieldco.
In 2023, Brazil's Vale separated its base-metals assets from its iron-ore operations, with a view to a potential initial public offering of the metals business. It expects a separate entity could trade at a premium to rival miners.
An Australia-listed iron-ore and coal company could attract a relatively high valuation on its dividend potential, said Jefferies analyst Christopher LaFemina.
A separately listed base-metals business would likely then trade at a premium to most other miners, given its prized assets and growth potential. Still, that kind of split would be difficult to structure and could have a heavy tax burden, LaFemina said.
Everything Must Go?
More radical measures could be considered.
A combined group must make big changes if it wants the lofty earnings multiples investors typically accord to miners focused on copper, said Berenberg analysts Richard Hatch and Jasper Mainwaring.
That means getting rid of coal and aluminum. The companies might even elect to spin off 50% of Rio Tinto's cash-cow iron-ore operations in Australia to make copper the most dominant piece of the combined pie, the analysts said.
Trading's Place?
In Berenberg's scenario, Glencore's marketing arm also gets the boot. They see it as a standalone entity listed in the U.S. or the U.K.
But some wonder whether Rio Tinto's ownership of Glencore's trading intelligence network could be a key benefit.
Analysts typically find commodity trading operations difficult to value. Yet they can offer valuable market insights and make huge profits from market disruptions. So, these operations take on a different light in a new era of geopolitical rivalry, said Huw McKay, a former BHP chief economist. "And Glencore is very good at it," he said.
Final Thoughts
There is no guarantee a deal will be agreed. Rio Tinto could also get a deadline extension with the U.K Takeover Panel's consent.
"The details will really matter," said Harding Loevner's Vyas.
The two sides need to agree on a premium that Glencore shareholders can accept and Rio Tinto holders can stomach. RBC reckons that is 27% higher than Glencore's undisturbed price. Berenberg estimates it to be 33%.
The companies are also worlds apart culturally, said Dan Coatsworth, head of markets at AJ Bell. Directors will want to be sure they can meld groups from the relatively conservative Rio Tinto with those from the more risk-friendly Glencore.
Also, Rio Tinto's record on large deals isn't very good, and its management may not fully understand what they are buying, given Glencore's myriad of assets and divisions, said Hugh Dive, chief investment officer at Atlas Funds Management.
"I've never seen one of these big acquisitions work," he said.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com and Adam Whittaker at adam.whittaker@wsj.com
(END) Dow Jones Newswires
January 27, 2026 03:23 ET (08:23 GMT)
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