Glencore PLC is dangling the prospect of a higher takeover offer for Teck Resources Ltd. TECK-B-T, and possibly even a tender offer, as it urges the company’s class B shareholders to reject the Canadian miner’s proposal to split itself in two when they vote next week.
Glencore of Switzerland earlier this month offered to buy Vancouver-based Teck at a 22-per-cent premium to its market value in a stock-and-cash deal worth roughly US$22.5-billion.
The board of Vancouver-based Teck, its management and its controlling class A shareholders have repeatedly rejected Glencore’s advances, saying a takeover would be ruinous to shareholder value.
Teck instead is pushing its shareholders to back its plan to separate into Elk Valley Resources, holding its metallurgical coal assets, and Teck Metals, containing its critical minerals mines. A meeting will be held next Wednesday, and two-thirds of votes cast must be in favour for the split to succeed.
If the vote fails, Glencore says it will be waiting in the wings, and on Wednesday, it indicated it can be coaxed into paying more for Teck.
“Glencore is willing to consider making improvements,” Glencore chief executive officer Gary Nagle said in a statement.
“Glencore has never stated that its proposal is ‘best and final.’”
But Teck dismissed the latest approach from Glencore as inconsequential.
“Nothing has changed – same low value, same flawed structure, same material execution risks,” Jonathan Price, CEO of Teck, said in a statement.
Since Glencore launched its initial proposal in early April, Mr. Price has argued that a Glencore tie-up would expose Teck to significant execution risk, harm its environmental, social and corporate governance (ESG) ranking, and stymie a bidding war that is expected to break out for Teck Metals, postsplit.
The Globe and Mail on Sunday reported that at least six major mining companies had already approached Teck with expressions of interest around Teck Metals, including Brazil’s Vale SA, London-based Anglo American PLC and Phoenix-based Freeport-McMoRan Inc.
“Glencore’s motivation is plain – they are seeking to opportunistically frustrate the vote and pre-empt a competitive future landscape, which is good for Glencore, and bad for Teck’s shareholders,” Mr. Price said.
Glencore also suggested on Wednesday that in the event of a failed vote at Teck and the company’s continuing refusal to engage, Glencore would consider a tender offer for Teck, saying it is “willing to make an offer directly to shareholders.”
Under Canadian takeover law, the threshold for success in a tender offer is typically 50 per cent to obtain control of the board. Given the unique tenets of this deal, success appears to be an extreme long shot, if not an impossibility.
Norman B. Keevil, Teck’s chairman emeritus, and Japan’s Sumitomo control 48 per cent of the stock, owing to their stranglehold on the class A shares, which carry 100 votes apiece. Both have said they are not interested in selling Teck to Glenore in its current stand-alone format.
“This is less a serious acquisition offer, as much as it is a Trojan horse designed to create chaos within Teck, to divide shareholders within the Teck B shares, to drive wedges between shareholders and management,” said Steven Tian, a corporate governance scholar at Yale University. “That appears to be Glencore’s entire strategy here, because they have zero path to an actual merger.”
In the event that Glencore improves its takeover proposal ahead of next week’s vote, the chances of it having any sway on Dr. Keevil appear slim.
He told The Globe last week that a higher per-share offer from Glencore would actually make its offer less enticing. That’s because it would result in Glencore “debasing their own currency.”
“The [Glencore] shares are worth less and less and less, because there’s so many more of them,” he said
It is not known which way the vast majority of Teck’s B shareholders are leaning as the crucial vote approaches, since investors typically make up their minds only shortly before. On Monday, Mr. Price expressed confidence that the company’s biggest B shareholder, China Investment Corp., will vote for Teck’s proposed split. CIC owns 10 per cent of the B shares.
British-based Egerton Capital last week told The Globe that it intends to vote for Teck’s planned split. Egerton is the fifth-biggest B shareholder, holding approximately 11.4 million shares
Toronto-based hedge fund Waratah Capital Advisors Ltd., which owns 2.3 million shares in Teck, said on Wednesday that it has already voted against the split, in line with the recommendation of two influential proxy advisory firms, Institutional Shareholder Services (ISS) and Glass Lewis & Co.
Waratah said in a statement that the Teck separation is a bad idea for shareholders.
“The proposed separation is an unnecessarily complex break of the two proposed entities, as they will remain highly intertwined for the next several years. Given the unsolicited Glencore bid for Teck, we strongly believe that a more fulsome strategic review needs to be conducted by Teck and the board of directors,” Waratah said.
Under the planned Teck split, EVR would pay about 90 per cent of its cash flow to Teck Metals for about 11 years.
Glencore has offered to merge its metals assets with Teck’s, then form a separate company that would hold the two companies’ thermal and metallurgical coal businesses alongside Glencore’s energy-trading assets.
Jefferies analyst Christopher LaFemina meantime predicts the dynamic of the deal will change dramatically if Teck loses the vote next week.
“We believe this becomes a takeover rather than a merger. There is no more GlenTeck if a deal is consummated in that case, " he wrote in a note to clients. “It would be Glencore, and Glencore’s management takes control.”