Anglo-Teck deal seen spurring rival bids: analysts

Anglo American’s (LSE: AAL) proposed acquisition of Teck Resources (TSX: TECK.A TECK.B, NYSE: TECK) could end up putting both companies in play as rival miners scramble to find large-scale copper assets, analysts said.

Anglo on Tuesday unveiled a $50-billion (C$69-billion) all-share deal for Canada’s largest diversified miner that would create the world’s fifth-largest copper producer – as long as regulators in Canada, the United States and China sign off. If that’s the case, the transaction is expected to close within 12 to 18 months.

Both Anglo and Teck have shed assets in recent years to focus on critical metals such as copper. Vancouver-based Teck sold most of its coal unit to Glencore (LSE: GLEN), while Anglo is moving to exit coal, platinum and diamonds. Both companies have also fended off unwanted approaches from rivals in recent years – with Teck rejecting an offer from Glencore in 2023 and mining behemoth BHP (ASX, LSE, NYSE: BHP) failing in a bid to buy Anglo last year.

“Due to the scarcity of available large scale copper assets, we believe that the possibility of an interloper for either company is elevated, and we would not be surprised to see a bidding war emerge,” Scotia Capital mining analyst Orest Wowkodaw said Wednesday in a note. “We find it difficult to see how Anglo competes for Teck if the larger miners with much stronger balance sheets get involved.”

Potential suitors for Teck include BHP, Glencore, Rio Tinto (LSE: RIO) and Freeport-McMoRan (NYSE: FCX), Wowkodaw said. Brazil’s Vale (NYSE: VALE) could also be interested in the company, according to Desjardins Securities mining analyst Bryce Adams.

Large-cap suitors?

Anglo’s friendly bid “could spark interest from several large-cap diversified mining companies looking to secure access to Teck’s large-scale copper portfolio within the Americas,” National Bank Financial mining analyst Shane Nagle said Tuesday in a note. He didn’t identify potential buyers.

Anglo’s at-market exchange ratio “could serve as a starting point” for other bidders keen to secure copper supply, particularly given the red metal’s designation as a global critical mineral, Adams said Wednesday in a note. He sees see potential for revised bids “in the near or medium term.”

Under the terms of the proposed deal, Anglo will exchange 1.3301 shares for each Teck share, a structure it called a “zero-premium” merger. In fact, the exchange ratio represents a 17% premium on Teck’s Monday closing price – though Anglo will offset it with a $4.5-billion special dividend to its investors, leaving the effective premium at just 1%.

An existing $330 million break-up free included in the deal “is not a prohibitive figure to a potential interloper for either company given the size of the potential prize,” Wowkodaw stressed.

Teck shares rose 3.7% to C$56.11 Wednesday in Toronto, their second straight gain since the transaction was announced. They have climbed 16% since Monday’s close, giving the company a market value of about C$27 billion.

Output problems

News of the Anglo deal comes days after Teck deferred major expansion projects while it works to fix output problems at its flagship Quebrada Blanca copper mine in Chile. A major overhaul of the mine high in the Andes came in $4 billion over budget and years behind schedule.

The decision is part of a comprehensive operational review that was launched in August and is set to conclude in October, with a focus on improving performance. This review includes a detailed action plan for QB.

“Announcing a sale now may signal a lack of confidence from management in resolving these issues,” Nagle said.

From Teck’s perspective, the timing of a friendly transaction “is hard to understand given the shares have significantly under-performed global peers primarily due to ramp-up challenges” at QB, Wowkodaw said. Before Tuesday, the stock had declined 17% this year.

Approval required

The transaction announced Tuesday must be approved by at least two-thirds of Teck Class A and B shareholders and more than half of Anglo shareholders. Each class of Teck shares will vote separately.

While Canada’s Keevil family and Japan’s Sumitomo control about 80% of Teck’s multiple voting Class A shares, they only have 0.02% of the Class B stock.

“Approval for the proposed transaction is not a certainty given a separate vote is required for Class B shareholders,” Wowkodaw wrote.

Regulatory approval is also no sure thing. Canada’s Industry Minister Mélanie Joly said Tuesday that the merger will undergo review under the Investment Canada Act to ensure it delivers a “net benefit” to the country.

“Any new investments must support our core mission of building one economy in the best interests of Canadians,” Joly wrote on X.

As industry minister, Joly is “required to confirm alignment with national economic and security interests,” James Whiteside, research director at Wood Mackenzie, said in a note. “Regulatory scrutiny under Canada’s Investment Canada Act represents the most material risk.”