Liberum Capital described itself as “super sceptical” while Bernstein said a combined company (following a shares re-rating) could offer “value uplift of $35 billion”

Excitement about a tie-up exploded into the open when it emerged Glencore CEO Ivan Glasenberg had made an informal merger offer in July that was rejected by Rio’s board.

Under London Takeover Panel rules, Glencore cannot bid again for six months.

But Liberum senior analyst Richard Knights said he thought a Glencore takeover of Rio “was a very low probability under any circumstance”

“The asset quality differential would make it incredibly difficult for Glencore to convince Rio shareholders that, even at a huge premium, a merger would be a good deal for them,” he said.

“And the reason is this: Glencore’s median mine life is 16 years. Rio has north of 100 years of resources in the Pilbara. How do you value that optionality?

“If I change my long-run iron-ore price by $5 a tonne, that adds $7 billion to Rio’s net present value.

“How do you value that over a 100-year mine life versus 16 years? It’s … difficult with that differential.”

Another seasoned observer said Rio shareholders would baulk at the idea of throwing in their lot with Glencore, which has assets in jurisdictions such as the Democratic Republic of the Congo, while its balance sheet was more highly geared (leading to suspicions that Glasenberg was seeking to de-risk his business).

In contrast, the observer said, Rio had predominantly “developed-world exposure and could still make a healthy trading margin when its all-in cash and freight costs were at $45/t” – the current iron ore price is $80/t.

“Additionally, there were was scepticism Glasenberg would pay a healthy premium for Rio, fearful, perhaps, that a takeover could end up being earnings dilutive for Glencore shareholders,” the observer added.

Still, Glasenberg could go hostile if the iron ore price cratered next year and Rio’s prospects deteriorated. About 85% of Rio’s profits are derived from iron ore.

But Glasenberg has numerous market supporters who backed his merger idea in principle.

Bernstein senior research analyst Paul Gait said if the price recovered at the end of the year, it would strengthen Rio’s hand but even so, “the long-term value proposition requires greater capital discipline and no one has been a more consistent advocate of this than Glencore”

Gait said a deal would give Rio shareholders the best of both worlds: short-term iron ore cash generation and longer-term base metals growth from Glencore’s portfolio that spans copper, zinc and nickel.

He said a merger could add up financially.

“We estimate an average earnings per share accretion of 13.7% over the next three years in a deal with a 20% takeover premium using 75% paper, 25% cash,” Gait said.

“Moreover, the deal looks free-cashflow accretive.”

Gait said not only was there potential for a $35 billion re-rating but a deal would allow the new company to effectively gear up what was previously Rio’s balance sheet.

HSBC analyst Ash Lazenby said a Glencore takeover could solve Rio’s dependence on iron ore, as well as a looming succession problem as CEO Sam Walsh’s contract is due to expire at the end of 2015.

And there were synergy benefits (such as sharing coal infrastructure in Australia).

“Given Rio’s positive cash flow … a merged entity could comfortably continue delivering sector-leading excess cash returns,” Lazenby added.

Depending on which broker you talk to and given the absence of any detail about the terms of a potential deal, synergy gains were put at between $1 billion and $5 billion.

“Rio’s Pilbara asset base would not only expand and diversify Glencore’s asset portfolio, it would also enable Glencore to leverage its trading business well beyond the marketing synergies achieved by its Xstrata and Viterra acquisitions,” RBC Capital Markets analyst Tim Huff said.

“A potential merger with Rio would enable Glencore to get hold of the lowest cost iron ore business in Australia, with a production footprint set to expand to 360 million tonnes per annum by 2017.”

But critics, including Glasenberg, have said oversupply is killing the market, with around an extra 410Mt in the next three years, against an expected increase in demand of 200Mt.

Whether Glasenberg can fix this via a Rio takeover is a moot point.