Teck Resources, Canada has rejected a hostile offer from Glencore. This would have created a giant natural resource company worth more than $90bn. It also led to a massive restructuring of the FTSE 100 miner.
This unsolicited offer is the largest attempt to acquire Glencore, a Swiss-based coal miner and major commodities trading house, since its merger in 2013 with Xstrata.
Based on March 24, prices before the approach, the enterprise value of both companies would be $91bn.
Teck Resources shares were up 15% by the time of the approach in Toronto. Glencore shares rose 1% by the London close.
This all-share deal comes weeks after Teck announced plans for the spin-off of its steelmaking coal business. It was based on a portfolio that includes minerals essential to the energy transition.
Glencore stated that it would create its own highly profitable coal company if the acquisition was completed. This will result in a New York-listed CoalCo with its thermal coal assets as well as Teck’s metalurgical coal assets.
The proposal would create a separate “MetalsCo”, which would include Glencore and Teck’s industrial-metals businesses as well as Glencore’s oil trading business.
After its assets are fully developed, this new metals company, tentatively called Glenteck would be the third-largest producer of copper in the world, after Codelco and Freeport.
After record profits by mining companies and trading houses in the wake of the chaos caused by Russia’s invasion Ukraine, the offer shows a growing interest in large acquisitions within the natural resource sector.
Glencore offered to purchase Teck in an all share transaction for a 20% premium on its share price of March 26, when Teck’s closing stock capitalisation was C$25bn ($19bn).
Glencore is hoping to convince shareholders by swooping in just as Teck’s shareholders vote on their own spinout plans, April 26.
Gary Nagle, chief executive of Glencore, stated Monday that the deal would create two global standalone giants and provide a substantial premium for Teck shareholders. If the deal goes through, Teck shareholders would own 24% of the resulting companies.
He stated that the merger would result in synergies between marketing and operations of $4.25bn to $5.25bn, which would enable the new companies to increase their market capital by about $15bn.
According to Teck’s letter published today to Glencore, the two sides had previously discussed merging in 2020. However, those talks didn’t progress according to Teck.
Teck stated that the offer was “opportunistically timbled” and that the board is not considering selling Teck at the moment.
Glencore’s thermal coal business could be exposed to shareholders, which would reduce the value of its steelmaking standalone co-business and go against its governance and environmental commitments.
Chair of Teck’s board Sheila Murray stated that sticking to the existing spinout plans would give Teck shareholders “a wider range of opportunities to maximize value”.
The majority of voting rights in Teck are held by the Keevil family through their class A supervoting share.
In a statement, Norman Keevil (ex-chair of Teck) strongly rejected Glencore’s offer. He said: “I am fully committed to Teck’s proposed transaction to create 2 world-class, well focused, independent companies.”
Glencore has been under pressure from shareholders regarding its thermal coal business. This includes criticisms about the disclosure level.