Big mergers, usually defined as deals above $10billion (£8.2billion), tend to get the blood running.
The possibility of a mega transaction involving UK natural resources behemoths Rio Tinto and Glencore was bound to spark vast interest.
We know from the past that such a deal has been considered. Former Glencore chief executive Ivan Glasenberg held talks on a tie-up with Rio in 2014. So the idea of a £130billion merger between these two FTSE 100 giants cannot be dismissed.
Forget, for the moment, that mega-mergers rarely produce the shareholder value promised. The mining and natural resources sector is ripe for deals. Demand for the most sought-after natural resources, notably copper, which offers connectivity in an electrified world, is unflagging.
It was the main driver for last year’s effort by Aussie-quoted BHP to absorb Anglo American. The deal fell apart because of a spirited defence by Anglo, and BHP’s abject failure to understand the deep roots of the De Beers owner in South Africa. That doesn’t mean, of course, that an ambitious BHP will not come back, either on its own or with a partner.
Mining deals were a big feature in 2024. Rio acquired Arcadium Lithium for £5.5billion and Peabody Energy bought Anglo’s Australian steelmaking coal mines.
Natural resources: Big mergers, usually defined as deals above $10billion (£8.2billion), tend to get the blood running
Glencore is always looking for opportunities to snap up enterprises in the same area. It is a company built on acquisitions with the battle for control of Xstrata in 2013, built by Mick ‘the Miner’ Davis, the highest value.
Conditions for deals in 2025 should be much better. Global interest rates are coming down, which lowers the cost of leverage. Moreover, the Trump Administration, which takes office on Monday, is likely to take a much less rigorous approach to anti-trust scrutiny than its predecessor. Similarly, Rachel Reeves in the UK, as part of her growth agenda, favours a less intrusive Competition and Markets Authority (CMA).
Anyone listening to the words of the big New York investment banks in the last 24 hours will recognise that they are limbering up for a bumper year of M&A after some £540billion of mega-deals in 2024, up on 2023, but still well below the $1 trillion (£820billion) seen pre-Covid in 2019.
The FTSE 100 is particularly attractive to predators. Values still lag those in New York. The biggest worry is that Shell, which regards Britain’s focus on green as unhelpful, decides to head to New York.
Rio, with a British heritage dating back to 1873, has come under constant pressure from activists to move to Sydney.
Watch for the earth tremors.
Lend, baby, lend
With the exception of the CMA, it has never been clear how Rachel Reeves’ decision to summon UK regulators to the Treasury to boost growth was ever going to work. It is Britain’s private sector which powers economic output, not bureaucrats focused most on the consumer interest.
The independent Bank of England can make a difference. It has the power to lower borrowing costs, as now looks likely in February. The Bank can also create the room for High Street banks to lend more. The decision to postpone the implementation of tighter capital requirements on the banks for a year is entirely sensible.
Supervisors based at the Bank for International Settlements in Basel are still fighting the last war by punishing the commercial banks for the 2008-09 great financial crisis. All that they have succeeded in doing is encouraging the expansion of the non-banking financial sector which operates outside the scrutiny of regulators.
Jamie Dimon of JP Morgan is among those against tighter US regulation, which constrains lending. The case for abandoning the Basel endgame, on both sides of the Atlantic, is overwhelming.
Carney unleashed
After years of speculation, former governor of the Bank of England Mark Carney is campaigning to be Canada’s next prime minister. No one could doubt his economic competence, and his ‘green’ credentials should help in a country that seeks to differentiate itself from a brutish Southern neighbour. Carney’s complex syntax and irritation with lesser mortals won’t help on the stump. He may have to rely on those George Clooney-like looks.
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