Glencore (LSE: GLEN) has a thing for Rio Tinto (LSE: RIO) and plucked up the courage to make a pass at its object of desire last August.
To Glencore and some other observers a pairing of the two commodity firms seemed like it would create a good fit in terms of geography and diversification of operations. Economies of scale could then be realised and the two firms could romp off for a future of blissful togetherness.
No thanks!
Rio was unimpressed and turned down Glencores offer. Yet Glencore wasnt put off and said it wouldnt rule out trying again, as the thought of creating an attractive $160 billion mining and trading monster wouldnt go away.
Rules in the UK allow Glencore to make a fresh overture from April onward. However, Glencores confidence must be waning, as its shares slipped by an embarrassing amount greater than Rios since October, causing the gossipers to question whether the couple are a suitable match after all.
Rios chief executive certainly doesnt think they are. He recently came straight out and said Rio Tinto will not be taken over by rival Glencore because there is no value in it for shareholders and regulators will never let it happen. Hed previously explained that it could never work out between them because of a clash of cultures Glencore is a trading company and Rio Tinto is a mining company. The firms have different operational and strategic time horizons, he reckons. So, thats the end of it then.
Will Rio Tinto ever find a mate?
This isnt the first time Rio Tinto gave a suitor the cold shoulder. Back in 2008, BHP Billiton (LSE: BLT) was sweet on Rio. It was a similar story back then, with Rio turning its nose up on value grounds, and regulatory opposition getting in the way of the wooing process.
Glencore will need to get over its unrequited love for Rio Tinto, perhaps by sentimental reflection of a previous romance in 2013. Back then, Glencore bid successfully for another rival, Xtrata, so perhaps its too soon to start a new romance anyway.
Theres no doubt that Rio Tinto has the most feminine and attractive-sounding name of all the commodity-related firms on the London market. That, and the companys sizeable and well-proportioned assets, could incite further approaches from admirers in the future. However, based on Rios record of aloofness to potential partners, I reckon Rio Tinto shareholders should make sure they dont price in any takeover premium when valuing the firm for investment purposes.
At a share price of 3,190p Rio Tinto trades on a forward P/E rating of 13 for 2015 with a dividend yield running at around 4.7%. That may seem attractive, but we should take a view on the macro-economic cycle and where commodity prices may be heading before investing.
Rio Tinto is a highly cyclical firm unlike the firms covered in this Motley Fool wealth report. Our top analysts scoured the market to find firms with reliable cash flow, solid trading positions and great prospects.
These are some of the least cyclical firms on the London market and they offer solid dividend- and capital- growth potential. You can find out more about them by clicking here.
Get FREE Issues of The Motley Fool Collective
Get straightforward advice on whats really happening with the stock markets, direct to your inbox. Help yourself with our FREE email newsletter designed to help you protect and grow your portfolio wealth.
By providing your email address, you consent to receiving further information on our goods and services and those of our business partners. To opt-out of receiving this information click here. All information provided is governed by our Privacy Statement.
Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.