Glencore to Teck: 'It’s On'

With the coal separation stalled, Glencore is likely to return – and other bidders may emerge.

Andrew Willis 27 April, 2023 | 11:18AM
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Glencore

In the ongoing Glencore-Teck Resources takeover saga, we’ve been closely watching Teck stock, especially in the run-up to a complicated restructuring of its coal business that was set for a vote Wednesday. But before the ballots could be cast, Teck turned around and changed the game.

After shareholder feedback, Teck (TECK.B) won’t proceed with the proposed demerger and spinoff of its metallurgical coal operations into a new company called Elk Valley Resources. Teck will instead pursue a simpler spinoff, equity analyst Jon Mills said today, agreeing with the decision.

Glencore GLNCY also shared its view on the withdrawal of the planned split, while seizing the opportunity to double down on its appeal to Teck shareholders: "Glencore notes the decision by Teck to withdraw its separation proposal and its recognition that a simple and direct approach to separation provides a better path to unlocking value for Teck shareholders," today's release said. "Glencore's proposal provides Teck shareholders with a clean separation for its coal business while also creating significant additional value for Teck’s shareholders in which they would fully and disproportionately share."

Teck Stock Price Propped Up by Proposal

Mills agrees that the original spinoff plan from Teck didn't offer a clean break from coal, unlike Glencore's current proposal. The amount on offer, with the looming vote no more, is supporting our view on Teck Resources stock for the time being. "We maintain our fair value estimate for Teck of $54 per share, consistent with Glencore's latest proposal," said Mills, noting that Glencore's proposal included a "meaningful premium" for Teck shareholders.

With all the attention this potential acquisition is getting, it could attract some competition for Glencore to contend with. “Other bidders may emerge,” Mills said. “If so, we think it is likely they will also propose a separation of metallurgical coal to satisfy those investors who prefer not to invest in fossil fuels.”

Glencore today reiterated its determination to buy Teck resources, even offering to potentially sweeten the deal. “We believe that with engagement, we could further improve our proposal's structure, terms, and value, which would be in the best interests of all Teck shareholders."

Glencore Willing to Take It to Bay Street

In an appeal to the Teck Board, Glencore said it would be willing to take alternative routes to reach a positive consensus on the takeover: "Glencore remains willing to make an offer directly to Teck shareholders if there continues to be no engagement from the Teck Board." But Glencore may not only find resistance from Teck's board but from the Canadian government as well. Earlier this week, Finance Minister Chrystia Freeland said Teck's headquarters should remain in Canada and help the country expand its critical minerals industry. "We need companies like Teck here in Canada, companies with a strong commitment to Canada," Freeland wrote in a letter to the Greater Vancouver Board of Trade that was seen by Reuters.

Opposition to the acquisition also stems from environmental, social, and governance risks, which Glencore addressed today, along with the concerns mentioned by Freeland, highlighting "the significant investments Glencore has already made in developing critical minerals in Canada, as well as our commitment to being a responsible and ethical operator wherever we work." Currently, Morningstar Sustainalytics' ESG Risk Rating for Teck is Medium, with controversies rated 3 out of 5, or "significant." Glencore's ESG Risk Rating is High, with controversies rated 5 out of 5, or "severe."

 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Glencore PLC ADR9.46 USD-1.25
Teck Resources Ltd Class B (Sub Voting)53.50 CAD2.67Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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