Rio Tinto (NYSE:RIO) announced that CEO Tom Albanese has resigned. They also mentioned they will be writing down $16 Billion resulting from two very large ill-fated acquisitions in the past six years.
Last year Rio Tinto wrote down some $8.9 Billion for the very same reasons. Thats almost $25 Billion in loss of value. The non cash comment don’t cut it when it gets that big.
The folks at www.GMIratings.com make the following point which I have paraphrased to say
“When Mergers and Acquisitions occur there is a 64% risk of a negative shareholder event very soon. Most mergers do not work. Take the cash.”
If anyone is looking for proof just do some fundamental analysis on Rio Tinto.
You can point to the commodity nature of Rio Tinto and call it a cyclical. But I think everyone understands that. You can point to reasons why most CEO’s of mining companies are being fired, let go or suddenly resigning. But that is only a fad. It throws the investors and governance police off the trail while everyone piles into the get-away-vehicle.
Ultimately look at the Board of Directors. They signed off on this guy and backed the investments at the beginning. Tom Albanese may be the Rio Tinto poster child but his board stink as well.
The Chairman has a background in retail, finance and tobacco. Hmm The other board members do not have any background in mining. Hmm. I know you look for diversity from a board but these guys knew nothing about the business. They had no ability to critically evaluate Tom Albanese schemes.
Hidden secret for value investors. What industry expertise does a board member bring to the table and how do you balance a board. Clearly Rio Tinto did not have it right.
Rio Tinto is a wounded puppy. In the world of deep value investing the objective is to buy ugly and sell pretty. Keep an eye out.