Glencore has gatecrashed a planned Chinese takeover of Rio Tinto’s Australian coal business, tabling a $2.55bn counter-offer that pitches Ivan Glasenberg, its dealmaking chief executive, into a new bid battle.
The move shows the Swiss-based miner and commodity trader, which was almost brought to its knees just two years ago by the commodity downturn, has lost none of its appetite for acquisitions after paying down debt and deleveraging its balance sheet.
At the end of May, Glencore’s said its agricultural arm had approached Bunge, the US grains company, about a “possible consensual business combination” that could create one of the world’s largest agricultural trading merchants if the sides can reach an agreement.
The $2.55bn bid for Rio Tinto’s Coal & Allied is $100m higher than has been offered by Yancoal, an Australian subsidiary of Yanzhou Coal that has yet to raise the financing for its bid and carries a significant debt burden.
Glencore said it would also buy Mitsubishi Corp’s stakes in the mines for $920m.
Rio Tinto acknowledged that it had received the proposal from Glencore to acquire its Australian subsidiary and said the board and management would give it appropriate consideration before responding.
If Glencore’s offer is accepted it would see the London-listed company take control of a series of mines that produce high-quality thermal coal, most of which is sold under contract to power stations in Japan.
Glencore has a number of neighbouring mines in Australia’s Hunter Valley and Mr Glasenberg has long coveted the assets, in part because of the potential to cut costs.
“The addition of the Coal & Allied assets to our existing portfolio in the Hunter Valley would unlock large-scale mining and operating synergies,” Glencore said in a statement on Friday. The combined portfolio of mines would have production capacity of 81m tonnes of coal.
Glencore said it would mitigate the impact on its balance sheet of the bid for Coal & Allied by selling “no less than $1.5bn” of other assets or by seeking a partner to take a 50 per cent stake in the Rio mines, a tactic it has used in many other deals.
Following its debt crisis, Glencore has promised shareholders that it will keep its net adjusted debt at a ratio of less than 2 times earnings before interest, tax, depreciation and amortisation.
The company now says its balance sheet will be managed so that net debt does not increase above December 2016’s level of S$15.5bn.
Glencore said its offer was “superior” because it was fully funded, unlike Yancoal’s bid. The Chinese coal miner has yet to raise the financing for its $2.4bn deal that was agreed with Rio earlier this year.
“The Glencore proposal is fully funded and is not subject to any funding condition or termination right. By contrast, Yancoal has the right to terminate the Yancoal deal if it is unable to raise the funding, and its funding remains outstanding,” Glencore said in its statement.
Glencore said its offer would expire in two weeks unless they had a binding agreement with the Anglo-Australian mining group.
That stipulation puts Rio’s chief executive Jean-Sébastien Jacques in a tricky position. He now has two choices: either accept Glencore’s fully funded offer or back a deal with Yancoal, assuming it matches Glencore’s proposal and can raise the cash to fund an increased offer.
Yancoal, which has secured regulatory approval for its bid in Australia, has the right to match Glencore’s counter-offer under the terms of the original sale struck in January.
Thermal coal is burnt in power stations to generate electricity and is one of Glencore’s most important commodities. The price of high-quality coal shipped from the Australian port of Newcastle has risen 50 per cent of the past year to $80 a tonne, after China moved to curb domestic production, a step that tightened the market.
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