Rio Tinto and Glencore are discussing a potential merger, including Glencore’s coal business. This move follows increased demand for copper and resulting interest in Glencore, with Rio Tinto revisiting a previous failed attempt to strike a deal. The surge in copper prices has influenced this possible merger, demonstrating renewed confidence that valuation aligns this time.
Typically, in such large deals, the acquiring company’s share price drops, whereas the target company’s share price rises. Currently, Rio Tinto’s share price has fallen by 2.5%, while Glencore’s has increased by over 10%. The future share prices will be affected by the deal’s progression, regulatory challenges, and final terms.
The ongoing Warner Bros. acquisition battle serves as a comparison. Despite market enthusiasm, Warner Bros. share prices have stabilised amid persistent negotiations, highlighting potential slowdowns if deals drag. In the past month, Warner Bros.’ share increased by 3%, but declined by 1.6% this past week. Netflix’s share price dropped by 6% after its offer, while Paramount’s declined by 14% following a higher bid. The Warner Bros. scenario underscores how uncertainty and regulatory scrutiny may stall price rallies.
With Glencore’s stock surging over 10%, we see an opportunity in buying call options to capitalize on further gains. If Rio Tinto is forced into a bidding war or simply raises its offer, these derivatives provide leveraged exposure to the upside. The backdrop is strong, as copper prices have recently climbed above $11,500 per tonne, a 30% increase since the third quarter of 2025, giving Glencore a solid valuation argument.
However, we must also consider the lesson from the Warner Bros. saga in late 2025, where the target’s share price rally stalled amid delays. Glencore’s 30-day implied volatility has now jumped to over 45%, significantly higher than its 52-week average of 28%. This makes selling out-of-the-money puts an attractive strategy for collecting rich premiums, especially if we believe the deal will face a prolonged period of negotiation and the stock will trade sideways.
For Rio Tinto, the acquirer’s stock has predictably fallen by 2.5%, creating a different set of trades. We can look at buying put options to bet on further declines if the market feels Rio is overpaying or taking on too much risk. As we saw when Paramount’s stock fell 14% during its pursuit of Warner Bros last year, the market often punishes the acquiring company’s shares during large-scale merger talks.
There is also a significant chance that regulatory bodies in the UK, EU, or China will block any potential deal, which would likely cause Glencore’s stock to give back its recent gains. We only need to remember the regulatory challenges that scuppered the BHP-Rio merger back in 2008 to see how these deals can fall apart. A contrarian play here would be to buy Rio Tinto call options, betting its stock will rebound sharply if the deal is officially called off.
