Teck rejects US$23B takeover bid from Glencore

Canada’s Teck Resources (TSX: TECK.A, TECK.B; NYSE: TECK), the country’s largest diversified miner, has rejected an unsolicited acquisition proposal from Swiss commodity trader and mining company Glencore (LSE: GLEN).

The all-share acquisition bid saw Glencore offering 7.78 shares for each Teck Class B subordinate voting share, and 12.73 Glencore shares for each Teck Class A common share. The proposal represented a 20% premium as of Mar. 26, according to Teck, and would be worth about US$23.2 billion at Friday’s closing prices.

The board’s decision, Teck said, was unanimous. It noted that Glencore’s bid was to acquire the company and subsequently create two businesses, which would expose Teck shareholders to a large thermal coal and oil trading business.

The Vancouver-based company also said the merger would increase geopolitical risk for its shareholders, given Glencore’s presence in jurisdictions such as the Democratic Republic of the Congo (DRC), and the inclusion of oil trading in the metals unit would undermine its appeal to investors.

“[All of this] would negatively impact the value potential of Teck’s business, is contrary to our ESG commitments and would transfer significant value to Glencore at the expense of Teck shareholders,” Teck chief executive, Jonathan Price, said in the statement.

Teck announced in February it was switching its name to Teck Metals Corp. and spinning off its multibillion-dollar steelmaking coal unit into a new company — Elk Valley Resources Ltd.

Teck had been weighing options for its metallurgical coal division for over a year, as the commodity is used in steelmaking, one of the most polluting industries.

“The proposed separation into Teck Metals and Elk Valley Resources is in the best interest of Teck and all its stakeholders,” it said on Monday.

“The board is not contemplating a sale of the company at this time,” chair Sheila Murray said.

Teck is instead urging shareholders to approve an already announced separation of Teck Metals and Elk Valley Resources (EVR) at an Apr. 26 meeting.

The two companies had discussed a potential merger in 2020, but those talks did not advance, according to Teck’s letter to Glencore published on Monday.

Focus on copper

Experts had anticipated that the company’s decision to split the business in two would make Teck Metals a takeover target. The company owns four copper mines in South America and Canada, which produced 270,000 tonnes combined last year.

Teck also expects to double copper output after the second phase of its Quebrada Blanca project in Chile ramps up to full capacity by the end of 2023.

Top miners, in turn, are hungry for copper assets as demand for the metal accelerates and a global shortfall looms. BHP, Rio Tinto and Glencore itself have disclosed that they are actively looking to grow their copper exposure.

The main difficulty for any potential suitor for Teck’s copper assets will be the new structure, post-breakup, which funnels royalties from a separated coal business to the base metals operations, as well as a six-year phase-out of a dual-class share structure, under which Canada’s Keevil family currently controls the company.

“Adding Teck Metals would position any major miner as a dominant player in base metals,” Citi analyst Alexander Hacking said in a February note to investors. “That said, six years can be a long time in equity markets and a lot could change between now and then.”

U.S.-listed shares of Teck rose 15% to US$92 apiece in morning trading, in a 52-week window of US$33.31 and US$94.24, valuing the company at US$714.4 million.

For Glencore, acquiring Teck would be its biggest acquisition since buying Xstrata Plc in 2012 and it would “unlock approximately US$4.25 billion — US$5.25 billion of post-tax synergy value,” it said in a letter.

The Swiss company also noted that its proposed acquisition would create two larger and more diversified companies than Teck’s own spinout plans.