I think this current Glencore proposal is DOA: Analyst Actions
Glencore Plc stepped up its pursuit of Teck Resources Ltd. with a new takeover proposal that adds a cash component and seeks to address one of the Canadian miner’s key objections to the deal — but stopped short of raising the total value of its offer.
Teck rejected Glencore’s earlier proposal to buy the company for about US$23 billion in shares and then spin off their combined coal businesses, in part because it would leave Teck investors with exposure to Glencore’s mines producing thermal coal — the most polluting fuel. Teck’s coal business is focused on steelmaking coal.
Glencore is now proposing a deal that would give Teck shareholders the option to receive up to $8.2 billion in cash instead of shares in the spun off coal company. Teck investors would still end up owning about 24 per cent of the combined metals-focused business — the same split as its previous offer.
The announcement signals Glencore is going on the offensive to win over Teck shareholders, even though the company’s controlling investor, Canadian mining patriarch Norman Keevil, has said he won’t sell at any price. However, the Swiss commodities giant could gain leverage if it can persuade enough Teck investors to reject the company’s own plan to split out its coal business at a vote April 26, throwing its strategy into question and potentially forcing it to engage with Glencore.
Teck will review Glencore’s latest offer, though it “appears to be largely unchanged,” the Vancouver-based company said in a Tuesday statement.
“The revised proposal does not provide an increase in the overall value to be received by Teck shareholders or appear to address material risks previously raised by Teck,” the statement said.
The looming vote in just two weeks time means pressure is mounting on both sides to win over investors. Glencore Chief Executive Officer Gary Nagle is heading to Toronto this week to meet with Teck shareholders, while the Canadian company delivered a bruising rebuttal in a presentation on Monday, in which it pointed to Glencore’s past missteps including pleading guilty to bribery and market manipulation.
Glencore’s decision not to raise the value of its offer also shows the company is wary of overpaying, even though it is flush with cash after reaping record profits last year on the back of its massively profitable coal operations. The world’s biggest miners have spent years seeking to repair shareholder support after a series of reckless deals that destroyed value and toppled CEOs.
Teck’s dual-class share structure means any takeover bid would need the support of the Keevil family, which dominate the Class A “supervoting” shares, but the company’s current restructuring plan also requires two-thirds approval from the holders of regular Class B shares.
“This revised proposal from Glencore helps, but we continue to expect a bump as we believe the premium offered so far is not high enough to get strong support from Teck’s Class B shareholders,” said Christopher LaFemina, an analyst at Jefferies. “We believe getting Teck’s Class A shareholders on board is a separate, more substantial challenge that will require, at a minimum, strong support for a deal with Glencore from Class B shareholders.”
Teck traded 1.7 per cent higher in Toronto, rising with other industrial-metals producers, while Glencore gained 2.7 per cent.
Glencore’s proposal, if successful, would give the company control of Teck’s lucrative copper mines — adding exposure to a critical building block for the green energy transition, while also providing a roadmap for the larger company to exit thermal coal much sooner than it had previously telegraphed.
The biggest miners have been grappling for years over what to do with their coal mines — most have already retreated, while Glencore has held its ground on a plan to operate the mines until they are depleted by 2050. Teck said last week it spent four years deciding what to do with its steelmaking coal business.
As Teck has remained resolute in its opposition, analysts and investors speculated that Glencore would have to increase its bid to get enough investors to support to its proposal. Instead, Tuesday’s offer gives them the option of owning a stake in the future coal business or taking cash.
“Glencore continues to believe that CoalCo’s combined thermal and coking coal assets would position it as a leading, highly cash-generative bulk commodity company which would attract strong investor demand given its yield potential,” Glencore said. “However, we acknowledge that certain of your investors may prefer a full coal exit and others may not desire thermal coal exposure.”
Glencore’s original offer represented a premium of about 20 per cent, which is significantly less than Glencore’s rivals have paid in recent deals — albeit for purely copper- or nickel-focused purchases. BHP Group agreed to buy an Australian copper miner for a 49 per cent premium to its value before the offer was announced, while Rio Tinto Group agreed a more than 50 per cent premium to secure more control of a giant copper mine in Mongolia.
Glencore on Tuesday urged Teck to enter discussions and delay its shareholder vote.
“We believe that it is in your shareholders’ interests to engage with Glencore and we see no valid reason not to delay your shareholders meeting,” Glencore Chief Executive Officer Gary Nagle said in the statement.