Hang on tight as volatility on our market will not ease until after the Greek referendum on its creditors' demands this Sunday. But if you thought the market rout will derail corporate interest in the market – think again.
If anything, the appetite for doing deals is stronger now that asset prices have tumbled and even coal is getting a look-in despite its bleak outlook.
While it may not have done much to support Rio Tinto Limited's (ASX: RIO) share price today, with the stock slipping 0.1% to $53.22, news that mining investment firm X2 Resources is locked in negotiations with Rio Tinto about buying the latter's controlling stake in three coal mines in the Hunter Valley is good news for shareholders.
Rio Tinto wouldn't confirm this but the news, which was first carried by the Financial Times, is likely to prick the ears of Swiss mining giant Glencore and inject some competitive tension for these assets.
Glencore tried to strike a deal for the coal mines with Rio Tinto about a year ago as merging these mines with nearby coal assets owned by Glencore would lower the cost of production.
But Glencore would not or could not offer Rio Tinto enough for its 80% stake in the Bengalla, Hunter Valley Operations and Mount Thorley Warkworth mines. Mitsubishi Corp owns the balance of the thermal coal mines.
X2's approach could give Glencore an added incentive to woo Rio Tinto and any deal could fetch between $US2 billion and $US4 billion.
Glencore merged with Xstrata in 2013 and X2, which is run by former Xstrata boss Mick Davis, has a $US5.6 million war chest and is scouring the world looking for assets. The fund could easily double its size if it also used debt for its investments.
This isn't the only deal talk around town today. Supermarket giant Woolworths Limited (ASX: WOW) is also speculated to be putting its gourmet grocer Thomas Dux on the market, while Kathmandu Holdings Ltd (ASX: KMD) has received a takeover bid that sent its shares skyrocketing 22.8% to $1.53 in afternoon trade.
Expect to see more deals. A report commissioned by law firm Baker & McKenzie estimates that completed merger & acquisition (M&A) deals will hit $US74.1 billion in 2015, before peaking at $US126.3 billion in 2018. This compares to M&A deal value of $US73.7 billion in 2014.
Why is this important for mom and dad investors? This is because it shows why you should not be afraid of looking for depressed companies with strategic assets and a sound business amid the ongoing market correction.
The jury is still out on whether Greece will be forced from the European Union and how bad the fallout from that event will be, but if you have a 2-3 year investment horizon you shouldn't let the Greek crisis go to waste.
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