Teck Resources Ltd (TSX:TECK.B) CEO Jonathan Price has spurned a takeover offer from Glencore PLC (LSE:GLEN) that would value the Vancouver company at a 20% premium over market value.
Price called the $23.1 billion proposal “structurally flawed” and a “complete nonstarter” over concerns that the deal would crater shareholder value by hanging the company’s coal resources out to dry.
Glencore, based in Switzerland, would essentially reseparate the combined company into two new companies, with one unit holding assets in thermal and metallurgical coal, and the other its base-metals portfolio, along with its oil assets.
“Glencore hasn’t presented a coherent plan for its proposed coal company,” Price told The Globe and Mail. “There’s no market for shares for a massive new thermal coal-focused company, and it would expose our shareholders to significant jurisdictional, ESG and execution risk.”
In a statement released Monday, Teck called the synergies of up to US$5.25-billion that Glencore claimed would result from a proposal as “ill-defined, overstated and challenging to realize.”
Teck also took aim at Glencore’s governance, saying it has been “in the news for the wrong reasons,” noting a $700 million fine issued by the US Department of Justice after the company pleaded guilty to a bribery scheme.
Teck has its own proposal, which Price insists is the better choice for shareholders. That would also split the company into two companies: Elk Valley Resources, which would hold its metallurgical coal assets and Teck Metals, which would hold its copper and zinc assets.
Shareholders will vote on that proposal on April 26, the company said, with two-thirds approval needed for it to pass.
Teck’s own proposal is not without acquisition. One issue is that it isn’t a complete split, as roughly 90% of Elk Valley’s cash flow will go to Teck Metals over a period of about 11 years. There are also the same ESG concerns for Teck Metals, given its significant ties to coal.
“Canada is not for sale”
Underlying the deal is the tension of Vancouver-based Teck potentially being purchased by a foreign buyer.
Last week, Teck’s controlling shareholder, Norman Keevil, said he would not sell Teck to Glencore, regardless of the price. The Keevil family, along with Japan’s Sumitomo Metal Mining Co, own the majority of Teck’s super-voting A shares, which carry 100 votes each.
Too many Canadian mining companies have been bought up by foreign corporations, he said.
“Canada is not for sale,” Keevil said.
Over the weekend, an investment group led by Pierre Lassonde, the cofounder of mining royalty company Franco-Nevada, said he hoped to take a controlling stake in Elk Valley once it is public, in part to insulate the company from being taken over by a foreign-owned miner.
Despite Keevil’s opposition, many experts believe Glencore will up its offer for Teck in the near future.
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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