Yahoo Finance Would 'be a pity' to lose Teck to a foreign miner, analysts react to Glencore's bid
Glencore PLC hopes to have further discussions with Vancouver-based Teck Resources Ltd. after the Canadian company rejected the mining giant’s US$23.2-billion merger proposal on April 3, but most mining analysts don’t expect the deal to progress in its current form.
Some also believe Teck is unlikely to accept an improved proposal from Glencore due to the “significant value leakage” from the large public coal company that the merger would create and the “elevated” regulatory risks involved.
“The likelihood of a successful transaction with Glencore is very low, even in the event of an improved premium (price is not the primary driver here),” Bank of Nova Scotia analyst Orest Wowkodaw said in a note to clients on April 4. “We did not speak to any investors who disclosed a strong conviction to the contrary.”
On April 3, Teck, Canada’s largest diversified miner, said it had rejected an “unsolicited and opportunistic” merger proposal from Glencore that would have created the world’s third-largest copper company alongside a big public coal company. As per the offer, Glencore would own 76 per cent of the company after the merger, while Teck would own the rest.
Ralph Profiti, an analyst at Eight Capital Research, on April 4 said Glencore faces an “uphill battle” in its goal to take over Teck, but it wouldn’t be a surprise if Glencore modifies its offer and only looks to buy Teck’s coal business.
Teck in February announced it would be dividing the company into two independent publicly-listed entities: one that will solely focus on metals such as copper and zinc that are needed for the energy transition, and one that will run its steelmaking coal operations. The separation needs approval from Teck’s shareholders in a vote scheduled on April 26.
Canaccord Genuity Corp. analyst Dalton Baretto said Glencore’s offer was just an “opening salvo,” and he expects an improved offer ahead of Teck’s shareholder vote.
“We can certainly see some merit to the proposal, especially the clean separation between the two units that would allow each to fulfill their respective destinies,” he said in a note on April 3.
Patricia Mohr, an economist and former vice-president at the Bank of Nova Scotia, said that any kind of takeover would have to be done with a “huge increase in return to shareholders” since Teck is one of the few companies that keeps Canada “on the front pages” of the international mining industry.
“There’s more to all of this than what the share price would be in the offer because I think that Teck is a national champion for Canada. There are benefits for the Canadian mining industry associated with this,” she said. “I think it would, personally, be a pity if we lost another of our major international players in the mining industry.”
Glencore’s chief executive Gary Nagle in a conference call on April 3, however, said that the merged company would have secondary listings in the Toronto Stock Exchange.
Last year, the federal government strengthened its national security review and said foreign companies buying deposits containing critical minerals, including lithium and copper, would have to go through additional reviews since the demand for these metals has increased amidst a rise in global sales of electric vehicles and the urge for nations to meet their climate goals.
As part of this, the government ordered three Chinese companies to exit three Canadian lithium miners. The federal government refused to comment on Glencore’s offer.
Nagle in a press conference on April 3 said Canada would benefit from a merger with Teck and the creation of one of the largest copper companies.
Teck produces first bulk of copper from its largest project in Chile
Teck announces coal spinoff in hope of unlocking more value for copper
But Teck’s chairman emeritus Norman Keevil, the voice of the family that controls the company, made it clear on April 3 that “now was not the time to explore a transaction of this nature.”
The Keevil family owns 51.16 per cent of the Temagami Mining Co. Ltd., which owns 55.4 per cent of Teck’s class A shares. The remaining 48.84 per cent of Temagami is owned by Japan-based SMM Resources Inc. SMM, which is owned by Sumitomo Metal Mining Co. Ltd., also owns 18.9 per cent of Teck’s class A shares.
Analysts said the Keevil family and Sumitomo have traditionally remained on the same page on decisions linked to Teck.
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