Glencore Pressures Teck Resources to Accept Merger Offer

On April 19, Glencore released an open letter to Teck Resources’ Class B shareholders. In the document, the company asked investors to accept the commodity trading and mining multinational’s merger offer. Meanwhile, Glencore stock remains up from mid-March, though still below the highs seen in January.

The open letter also noted that Glencore would approach shareholders directly with its offer if Vancouver-headquartered Teck Resources delays its April 26 shareholder meeting. They dded they would do the same if shareholders vote down the proposed separation of that company’s metals and coking coal assets into TeckMetals and Elk Valley Resources on that day.

However, Glencore also warned that Teck’s planned separation of its assets would likely have “significant complexity and impede future transactions.”

“We believe there are a limited number of parties that are willing or able to acquire both material metals and coal cashflows,” the multinational said in a statement. “Glencore’s proposal is unique in this regard in that it provides an accretive value proposition for both metals and coal. Any potential subsequent sale of the TCS by an acquirer of Teck Metals is likely to be at a discounted value given Teck Metals’ lack of control over these cashflows. In effect, the value of the TCS, plus the value of EVR, is likely to be less than the value of Teck’s coal business today.”

Teck’s board of directors has consistently recommended that shareholders not accept Glencore’s offers. This applied both to the initial Merger offer from April 3 and the sweetened offer from April 11. The board did so partly on grounds it would expose the Canadian company to thermal coal and oil trading.

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Teck and Glencore Stock a Big Part of the Deal

Glencore’s initial merger offer stipulated the creation of a metals company, tentatively called GlenTeck, and an as-yet-unnamed coal company.

The proposed merger would occur partly via a combination exchange ratio of 7.78 of Glencore stock shares per Teck B share. This represents a valuation premium of 23% based on several specific share prices from March 2023.

Glencore also proposed a combination exchange ratio 12.73 of its shares per preferred Teck A share. This represents an average 39.5% valuation premium and is also based on specific share prices from March.

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The Swiss-headquartered multinational released its updated merger proposal on April 11. In this offer, Glencore sought to buy Teck shareholders out of their coal exposure by offering 24% of the metals company resulting from the merger, plus $8.2 billion in cash. Glencore also indicated a willingness to change its updated merger offer, stressing that it was not final.

“In fact, we believe that, with engagement, we could improve our proposal’s terms and value, that group added. “[This] would be in the best interests of all Teck shareholders.”

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Doubts Remain Among Industry Insiders

Industry watchers and players told MetalMiner they have doubts over Glencore’s proposed merger with Teck. One industry watcher in particular seemed unimpressed by the open letter.

“It smells of desperation,” the source said. Indeed, Glencore has thus far failed to gain traction with shareholders. Therefore it seems eager to turn shareholders’ heads with potentially higher numbers.

“It would also look very bad for Glencore if Teck successfully rebuffs the merger offer, proceeds to split its assets, and then completes a transaction with another mining major,” the source added. For instance, if Teck were to decline the merger entirely, it could impact Glencore stock prices.

A tie-up of the two companies could also mean that some Tech investors would have to pull out. Sources told MetalMiner this would occur because their strategy or charter means they can only invest in projects with lower-carbon levels.

“Teck is an inherently low-carbon metals producer,” another analyst said earlier in April.

“A merger would not bring more volumes of copper to the board,” they added. “Especially considering that an expected copper deficit could outstrip demand by 6 million metric tons in 2030.”

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