Rio Tinto and Glencore rise on reports of merger talks

(Sharecast News) - Shares in Glencore and Rio Tinto were rising on Friday on the back of reports that the two companies have been discussing a potential merger.

According to Bloomberg News, which cited people close to the matter, discussions were at an early stage but it's unclear whether these talks were still ongoing.

According to sources cited by the Financial Times, talks were held as recently as October.

Nevertheless, if successful, the tie-up of the two groups would represent the biggest deal in mining history, with Rio Tinto already the world's second-largest miner behind Australian rival BHP.

As of Thursday's close, Rio Tinto boasted a market cap of $103bn, while Glencore was valued at $55bn.

If combined, the new entity would eclipse the size of BHP, valued at $126bn, though it is possible that parts of each business could be spun off or sold to get a deal over the line - such as Glencore's huge coal operations which it toyed with spinning off in 2023.

Glencore's share price was up 2.7% at 380p by 0916 GMT, while Rio was trading 1.4% higher at 5,000p.

It's not the first time that Rio and Glencore have flirted with the idea of a merger, with Rio having rejected the idea floated by Glencore in 2014.

However, Friday's reports still came as a surprise, according to analysts at RBC Capital Markets. "Rio Tinto has since divested coal, while Glencore has added assets through buying out its JV partners of Cerrejon and acquiring Teck's coking coal assets. The approach of BHP to Anglo American last year may well have catalysed talks between the two," RBC said.

"We would not expect a straight merger to happen as we believe Rio shareholders would see it as favouring Glencore, but its possible there is a deal structure out there that could keep both sets of shareholders and management happy. The MA parlour games that we saw last year, will undoubtedly start again in earnest."