Swiss commodities giant Glencore on Wednesday published an open letter to the shareholders of Canadian mining group Teck Resources in an attempt to convince them to accept its takeover offer, saying it was ready to further improve it.
The Canadian group has responded with its own letter to its shareholders, saying that Glencore’s offer is not a “realistic or viable option”. Glencore’s missive is “an opportunistic attempt to disrupt” its coal spin-off project “with an ill-defined and highly uncertain proposal”, the Canadian group accuses.
On Wednesday morning, the Swiss group issued a letter to Teck Resources shareholders ahead of an extraordinary general meeting urging them “to take action”. Glencore assures them that it could “improve the terms and value” of its proposal, “which would be in the best interest of all Teck shareholders.” The letter is addressed to Class B shareholders, with Teck Resources shares split into two classes. Class A shares have more voting rights.
Metallurgical coal splitting
In February, Teck Resources, one of Canada’s largest mining groups, unveiled a plan to spin off its metallurgical coal business by splitting its operations in two. Its shareholders are due to vote on this project at an extraordinary general meeting on April 26. But in the meantime, Glencore made an offer to Teck to merge their operations and simultaneously split them into two companies, one specializing in metals and the other in coal.
The $22.5 billion-plus offer represented a 20% premium to Teck’s closing price on March 24. The Canadian group immediately refused it. Among their arguments, its executives warned that Glencore’s activities also include thermal coal, which is much more contested than metallurgical coal because of its CO2 emissions and contribution to climate change.
Faced with this refusal, Glencore modified its proposal on April 11, offering Teck Resources shareholders who wish to exit coal to receive 24% of MetalsCo, one of the two companies that would emerge from its offer, as well as a cash payment totaling $8.2 billion. Teck’s board of directors again refused.
“Financially complex” in hindsight
On Monday, Norman Keevil, the patriarch of the family that owns a large portion of the Class A shares, backed Teck’s leaders, saying he was open to a deal “with the right partner” and on “the right terms” but “after separation.” Glencore’s proposal is not the right one and comes “at the wrong time”, he said. Class A shares have 100 voting rights per share, compared with one for Class B shares. The Class A shares, held by the Keevil family through Temagami Mining and a subsidiary of Japan’s Sumitomo Metal Mining Group, represent 60.5% of the voting rights, according to Teck Resources’ annual report.
The activist fund Bluebell Capital, shareholder of both groups with an undisclosed stake, believes that Glencore itself should start by separating from its own coal activities, even if it means discussing with Teck at a later stage when the latter has completed its project, the fund, which sent a letter to Glencore executives, told AFP.
However, Glencore defends its proposal, explaining that an ex post merger would create a “financially complex” situation. He questions transitional measures in the Teck demerger project, which he believes would complicate the integration if the merger were to take place later. His proposal “could no longer be implemented in its current form,” he wrote in his open letter to shareholders. “We encourage Teck’s shareholders to act to ensure that Teck’s board of directors engages in good faith negotiations,” wrote the Swiss giant, which is active in both commodity brokerage and mining.
