Rio Tinto and aluminium

In addition, Rio Tinto had to unveil a further $10 to $11bn hit to the valuation of its aluminium assets, bought at the market peak. It has now written down $28bn of the $38bn paid for aluminium company Alcan in 2007, analysts estimated.

That\’s gotta hurt. And as the economists keep trying to tell people: takeovers very rarely make money for the shareholders of the acquiring company.

7 comments on “Rio Tinto and aluminium

  1. And as the economists keep trying to tell people: takeovers very rarely make money for the shareholders of the acquiring company.

    Which, alas, is a problem in two ways. The first way is it makes me wonder why people opposed to take overs because of monopoly concerns continue to oppose them. And second it makes me wonder why people do them – surely a rational market would punish such efforts given they nearly always fail. So why do executives keep trying it on? Sure, it will build a legacy, supposedly, and it is action which the less competent CEOs always like. But why aren’t the long term interests of the company more aligned with theirs?

  2. ” And second it makes me wonder why people do them – surely a rational market would punish such efforts given they nearly always fail.”
    It is the China Switzerland paradox.
    Life is a lot better for people in Switzerland than China, but because there are lot more people in China the president of China is a lot more important than the president of Switzerland.
    That is why executives like mergers and why politicians like immigration. It makes them
    the leader of y+x people instead of x people.
    (Where y is the number of new staff or immigrants and x the original number).

    “But why aren’t the long term interests of the company more aligned with theirs?”
    Their pension should be dependent on the % value of any assets they buy 5 years after they leave.
    If it is less than 100% of the purchase + inflation (or minus depreciation) then their pension should take a big hit.

  3. David – “Their pension should be dependent on the % value of any assets they buy 5 years after they leave.”

    How about giving them their pension in small installments? They will get X shares, now, in five years, in ten years, in fifteen years and in twenty years. Or their heirs should they fall off the perch.

    If they get the same number of shares every few years, they will have their old age in front of them to concentrate their minds on long term value adding.

  4. One exception: when Exxon purchased Mobil, they weren’t even aware of the Qatar gas field that was on Mobil’s books. It just wasn’t considered during the purchase. Looking back, Lee Raymond says that field alone was worth the purchase price of the whole company.

  5. Yes they do. They make tons of money. Who wants to listen to economists anyway.

    This is where I wish there was an emoticon that everyone knew for “satire”. Of course … I s’pose lots of people wouldn’t recognize satire even if you told them ;)

  6. “takeovers very rarely make money for the shareholders of the acquiring company.”

    But when they do, do they make the acquiring company lots of money?

    Incidentally, I’d note that Tim’s statement apparently only applies to companies taking over similarly sized competitors. I’ve seen several small businesses which sold out to much larger competitors, and as far as I know the larger businesses had sufficient economies of scale to make the transaction a good one for all parties.

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