Teck Resources Limited (NYSE: TECK) announced on Monday that its board rejected “an unsolicited and opportunistic acquisition proposal” from Glencore.
The proposal would see Glencore acquire Teck and then split into two companies, exposing Teck stockholders to thermal coal and oil trading, according to the corporation.
“The Glencore proposal would expose Teck shareholders to a large thermal coal business, an oil trading business and significant jurisdictional risk, all of which 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,” said CEO Jonathan Price.
Glencore proposed an all-share acquisition of Teck, paying 7.78 Glencore shares for each Teck Class B subordinate voting share and 12.73 Glencore shares for each Teck Class A common share, representing a 20% premium on the offer date. The proposal indicates a desire to proceed with the simultaneous (or near simultaneous) demerger of the merging firm’s combined thermal and metallurgical coal activities as well as its ferro-alloy operations into a new publicly traded business. The remaining entity would contain the basic metals activities of Glencore and Teck, as well as Glencore’s oil and other commodity trading business (other than coal trading and marketing).
The mining firm labeled the unsolicited offer “opportunistically timed” as the company “is ramping up its flagship QB2 copper project and poised to implement its separation plan to create two world-class, pure-play companies and realize the full potential of each business for shareholders.”
Teck’s shares jumped nearly 16% following the news.
Instead of the rejected proposal, the Teck board is recommending shareholders vote in favor of its own separation plan.
“The Board is not contemplating a sale of the company at this time. We believe that our planned separation creates a greater spectrum of opportunities to maximize value for Teck shareholders,” said board chairperson Sheila Murray. “The Special Committee and Board remain confident that the proposed separation into Teck Metals and Elk Valley Resources is in the best interests of Teck and all its stakeholders, is a much more compelling transaction and does not limit our optionality going forward.”
The firm added that “the separation plan that Teck has proposed, which will create two world-class Canadian companies, provides a superior opportunity to maximize value for all Teck shareholders.”
This is not the first time the Swiss miner attempted to buy the Canadian firm. Glencore and Teck undertook thorough merger talks about two years ago, which terminated without an agreement.
“As you know, our respective teams engaged in conceptual discussions in 2020 regarding a similarly structured transaction and, following a careful review by our Board, we determined at the time not to proceed further. There has not been any meaningful engagement by our respective teams concerning this type of transaction for over two years,” the firm said in its letter of rejection to Glencore.
But for Bloomberg’s Javier Blas, “buying Teck makes the most sense for Glencore,” noting that the synergies are obvious.
“Teck is a major shareholder of the Quebrada Blanca copper mine in Chile, which lies just a few miles from Glencore’s own Collahuasi mine. Teck owns a stake in Peru’s Antamina copper mine, in which Glencore also has a major interest. And Teck has a coal division that would fit with Glencore’s own one,” Blas wrote.
Teck also highlighted that the proposal “will require competition and regulatory approvals in a large number of jurisdictions,” which could potentially take up to 24 months to resolve. In comparison, the firm touted that Teck shareholders are expected to realize the substantial benefits in the near term of the separation plan its own board proposes.
The synergies Glencore apparently highlighted in its bid appears to be “ill-defined, potentially overstated and challenging to realize” for Teck, the company noted.
The Board of Directors continues to recommend that shareholders approve, among other things, the previously announced reorganization of Teck’s business and the previously announced proposal to introduce a six-year sunset for the multiple voting rights attached to Teck’s Class A common shares on April 26, 2023.
Information for this briefing was found via Sedar, Bloomberg, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.