Teck CEO opens door to takeover of metals unit if split is approved, but Keevil family has final say

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Teck Resources Ltd. TECK-A-T chief executive officer Jonathan Price is ruling out any chance of accepting Glencore PLC’s takeover proposal, but he is opening the door to a takeover of Teck’s stand-alone metals and coal divisions if a planned split of the company gets the nod from shareholders.

Teck plans to separate into two companies later this year, Elk Valley Resources (EVR), which would hold its metallurgical coal assets, and Teck Metals, which would contain its copper and zinc mines. On Apr. 26, Teck shareholders will vote on the transaction, and at least two-thirds approval is needed for success.

Last week, Glencore PLC GLNCY of Switzerland, in a move to pre-empt Teck’s split plans, offered to buy Teck in its current form at a 20-per-cent premium to its market price in a deal worth US$23.1-billion. Glencore also said that if that deal succeeds, it too would split itself up, with one unit holding its thermal coal and metallurgical coal assets, and the other holding its metals business and its oil trading unit.

Teck on Monday reiterated its opposition to Glencore’s approach, saying the takeover proposal carries significant jurisdictional, execution and ESG risks.

“There is no path that includes Glencore acquiring Teck,” Mr. Price said in a conference call with analysts on Monday. “This is not just about price. We also see serious structural flaws in the proposal.”

Mr. Price, however, did leave the door open to Glencore, or any other large mining company, making takeover offers for either EVR or Teck Metals once the split of Teck is complete, which could be as early as June.

“With the pure-play nature of those two vehicles, it’s just natural that there will be more opportunities for value creation postseparation, than exist in the current construct of Teck Resources,” he said.

Teddy Molson, partner with U.K.-based Egerton Capital, which holds 11.4 million of Teck’s B shares, threw his weight behind Mr. Price in not entertaining Glencore’s takeover offer right now.

Owing to Teck’s heavy coal weighing, Glencore is one of the few companies that would be willing to buy Teck in its current form, he said, but post-split, many miners will be interested.

“It would be crazy to sell the company before the separation,” said Mr. Molson.

Teck Metals’ market value is projected to be around US$21-billion post-split. Several multinationals have indicated their interest in growing their critical minerals portfolios, including BHP Group Ltd., Rio Tinto Group and Anglo American PLC. Teck’s critical minerals portfolio is set to expand significantly over the next year with the recent startup of production at its massive QB2 copper mine in Chile.

Even if Teck Metals were to receive a large takeover offer post-split, and Teck’s board is in favour, the company’s controlling A shareholders have the final say.

The A shares, which carry 100 votes each, are predominantly held by the Keevil family of Vancouver and Japan’s Sumitomo Metal Mining Co. Norman B. Keevil last week told The Globe and Mail that he isn’t interested in selling to Glencore on economic nationalism grounds, saying that Canada is not for sale.

Mr. Keevil and Sumitomo will continue to hold A shares in Teck Metals for another six years following the planned split of Teck. At that point, they will exchange the A shares for regular-voting B shares, and receive a significant premium for doing so.

Unlike Teck Metals, EVR will not have A shareholders capable of blocking a future acquisition, but that doesn’t mean it won’t have significant defences of its own.

On the weekend, an investment group led by Pierre Lassonde, co-founder of Franco-Nevada Corp., the world’s biggest mining royalty firm, told The Globe that he plans to take a controlling interest in EVR once it starts trading, in part to protect EVR against any takeover by a foreign mining firm.

Some analysts believe that Glencore will hike its current bid for Teck in an attempt to try to nudge B shareholders such as Mr. Molson to vote against Teck’s proposed split. But Mr. Molson said that tactic won’t work on him.

“There’s absolutely nothing to stop Glencore from making a bid postseparation,” he said.