After intense speculation last October and November and again in early April, talk of a Rio Tinto Limited (ASX: RIO) and Glencore tie-up could have been laid to rest after recent comments from Federal Treasurer Joe Hockey, who declared there was "no way" he would allow a Glencore takeover "on my watch".
Mr Hockey's comments, as quoted in Fairfax media, likely refer to fears that profits will head overseas during any takeover attempt, reducing already-strained government iron ore revenues.
Also, the fact that Glencore's market cap is smaller than Rio's (it is harder to buy out a bigger company) and Rio CEO Sam Walsh's aversion to the merger, mean that at this point in time a Rio-Glencore conglomerate looks unlikely.
Meanwhile Glencore CEO Ivan Glasenberg is still attempting to convince Rio shareholders that he would deliver better outcomes for the company by cutting production in order to maintain ore prices and profits.
Glencore has already cut production at several of its coal mines in an attempt to show its leadership in that sector, which also suffers from oversupply.
However, it is likely that major Rio shareholders are half convinced of the merger's benefits already, with Rio expected to deliver a sharp drop in profits this year despite booming production and record low costs.
Furthermore with the demand for iron ore expected to slow further and China acting to boost its domestic supplies, it might not be too long before shareholders start to throw their weight around and demand a change in strategy.
Rio and BHP Billiton Limited (ASX: BHP) are also being examined for potential tax avoidance over payments to their marketing hubs in Singapore.
While the verdict is up in the air at this point, an adverse finding could potentially cost Rio billions, resulting in a hit to the share price and making the company more vulnerable to a merger offer.
So while I don't think a Rio-Glencore merger will make it through the triple hoops of Treasurer/Foreign Investment Review Board (FIRB) / Rio Board (and potentially Australian Tax Office (ATO) approval) there could be another merger offer in the pipeline.
I am comfortable holding my Rio shares through either eventuality, but one thing I'm not doing is investing extra money in the iron ore market just yet.
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