Australian Rio Tinto Investor raises concerns about merits of possible Glencore deal

The Australian investor who is Australia's largest and oldest has joined the chorus of local concerns over Rio Tinto's possible acquisition of Glencore. He questioned the merits of the proposed tie-up?and its timing.

Mark Freeman said that Rio Tinto has "a lot of important questions to answer about how it will create value."

"A lot M&A at top of market has not created value over the long-term." We're curious to know why people think that this time will be different, he said.

Rio Tinto confirmed that it was in talks with Glencore on Friday about a possible merger. This could result in?the largest mining company of the world, worth more than 200 billion dollars. The companies have not disclosed if there will be a premium for a takeover or who would manage the combined company.

Investors in London who own shares in both companies are more likely to be supportive of the possible deal than those in Australia, where Rio Tinto has the most popular shareholding.

Investors in Australia, where more than 20% of Rio Tinto shares are dual listed, and its iron ore mines are highly profitable, expressed concern that the company might overpay.

Some people have said that the deal reminds them of past transactions they deemed poor, like BHP's purchase of Billiton back in 2001.

Freeman stated, "There are many scars." If you do this, then it has to be for the benefit of Rio's shareholders. Not only make the company larger or more diverse."

The race among global miners to increase their metal output, including copper, to take advantage of the energy transition and the artificial intelligence market, has led to a wave of new project expansions and acquisition attempts.

Freeman asked why Glencore was pursuing Glencore's copper assets, when the prices of the metal are near records.

When you are at the peak of the mining boom there are many companies that look good. When the cycle ends, the stronger companies are exposed and the better ones stand out.

AFIC, Australia's largest listed company, has approximately A$10 billion (7 billion dollars) in assets under management. BHP was the company's largest holding, and Rio Tinto was its eleventh largest at December 31.

AFIC reported on Thursday that Mirrabooka Investments, its A$661million investment company focused on mid- and small-cap companies, had returned 1.3% in the six months to December 31, 2015. The benchmark index for Small Ordinaries and Mid Cap 50, including frankings, rose 14.3%. (1 Australian dollar = 1.4995 dollars) (Reporting and editing by Jamie Freed; Reporting by Christine Chen)

(source: Reuters)