Simon Trott facing his ‘first test’ as Rio Tinto is warned against paying a premium for Glencore

A large Rio Tinto shareholder has chided the mining giant for its lack of detail about a potential merger with Glencore and believes no premium should be paid for the deal to be done. Wilson Asset Management portfolio manager John Ayoub said Rio’s announcement on Friday about a possible $300 billion tie-up with Glencore left a lot to be desired. “One thing that’s clear is that there’s a lack of information,” Mr Ayoub told The West Australian. “They (Rio) have pointed to the fact it’s preliminary (negotiations), but I think I’d encourage both companies to come out through a little bit more detail, because this is a significant transaction and we need to understand the mechanics behind it. “Whether or not this a true merger with no premium makes a lot of difference as to how it’s viewed by the market.” Rio’s ASX-listed shares tumbled more than 6 per cent on Friday morning, suggesting investors are expecting Rio as the larger company to pay a premium for Glencore’s stock to get a deal over the line. “Rio has the best assets in the world, and Glencore shareholders will get access to those and they’ll get to enjoy the cash flow that the Pilbara iron ore provides,” Mr Ayoub said. “For Rio shareholders, we will get copper synergies and the trading and marketing expertise. So there’s a little bit there for both sides. “But this needs to be a merger, not a takeover. No premium can be paid whatsoever or else the deal doesn’t make sense for Rio shareholders.” The renewed pursuit of a deal with Glencore looms as the first major “test” for Rio chief executive Simon Trott, who has touted a strategy of prudent capital management since ascending to the top job in the latter half of last year. Macquarie mining analyst Rob Stein said the merger talks with Glencore conflicted with Mr Trott’s pledge last month to make his company “stronger, sharper and simpler”. “The surprise move by Rio to resume talks with Glencore could cast doubt on Rio’s valuation and investment thesis even beyond the February 5 ‘put up or shut up’ deadline,” he said. Mr Stein believes Glencore’s shareholders would almost certainly demand a premium from Rio. Glencore and Rio were revealed to be in merger talks early last year, but those discussions petered out before a formal offer was put forth. Rio has come back to the negotiating table with its share price having surged to a record of $154.75 earlier this week. Much of that rise has been attributed to resurgent lithium demand and a warm market response to Mr Trott’s cost-cutting crusade. “Rio’s leadership and their board, it’s worth remembering that they came out not too long ago telling us they will be disciplined on capital allocation. Well, guess what? This is your first test,” Mr Ayoub said. “This is your absolute first test to show us that discipline, to show us that you will get us that economic return that we all desire and not jeopardise the growth platform that they have. “So again, I’ll stress this needs to be a merger, as opposed to a takeover.” WAM is one of Rio’s largest Australian-based shareholders. Rio is the largest holding in the $1.9 billion WAM Leaders fund, with more than $100m tied up in Rio stock. Glencore has long signalled its eagerness for a deal to be struck, having shifted large chunks of its asset base into an Australian subsidiary in December 2023 to make it easier for a merger or takeover to go ahead. RBC Capital Markets analyst Kaan Peker last year speculated that former Glencore chief executive and current largest shareholder — Ivan Glasenberg — was pushing for a transaction so he could cleanly cash out his 10 per cent stake for a high price.