Business
Teck’s spun-off Canadian coal company would be a sitting duck for a foreign takeover
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The logo for Vancouver-based Teck Resources is displayed above the company’s booth at the Prospectors and Developers Association of Canada (PDAC) annual conference in Toronto on March 7, 2023.CHRIS HELGREN/Reuters
The pure coal company that Vancouver’s Teck Resources Ltd. TECK-B-T plans to create will likely land in the hands of predatory foreign investors, delivering a blow to Teck’s efforts to keep those assets under full Canadian control, the chief executive officer of Switzerland’s Glencore PLC GLNCY says.
In an exclusive interview with The Globe and Mail on Tuesday, Gary Nagle said he is aware of several investors who are eyeing Elk Valley Resources, the coal company that Teck plans to form through a spinoff, all of them foreign.
“There is a strong possibility that someone in the coal industry will acquire Elk Valley on the cheap,” he said, referring to Glencore’s belief that the company would trade at a low value because it would pay most of its cash flow to Teck Metals, as the new coal-free Teck would be called. “There is a high risk that Teck Metals would not see all the cash flow payments from Elk Valley as the new owners would find ways around this by being opportunistic.”
Mr. Nagle’s comments came as Glencore’s takeover battle for Teck turned nasty, with Teck on Monday highlighting the more than US$1-billion in penalties paid last year by the Swiss commodities giant to the U.S. Department of Justice and various other regulatory authorities to settle bribery and market manipulations investigations. Senior insiders at Teck and Glencore said it appeared that both companies were now on the “warpath.”
Glencore on Tuesday intensified its bid for Teck by adding billions of dollars in lieu of stock, but Teck doesn’t appear to be open to the proposal. The sweetened offer came one day after Teck comprehensively rejected Glencore’s proposal to merge with Teck and create two new companies, one that would hold their combined base metals assets, copper among them, and the other to hold their metallurgical and thermal coal operations.
Glencore’s new merger proposal would give Teck investors 24 per cent of the new metals company, plus US$8.2-billion in cash. Glencore said in a statement that it “acknowledged that certain Teck investors may prefer a full coal exit and others may not desire thermal coal exposure. Accordingly, Glencore has proposed to the Teck board to introduce a cash element … to effectively buy Teck shareholders out of their coal exposure.”
The new offer also means that Teck investors can avoid any exposure to Glencore’s thermal coal business.
While Glencore is now offering a partial cash deal, the overall value of the transaction of about US$23.1-billion is unchanged.
Teck in response said that it intends to thoroughly review the Glencore offer, but at first glance, it isn’t impressed. “Glencore’s revised proposal appears to be largely unchanged, with the exception of a cash consideration alternative in lieu of shares in the proposed combined coal entity,” Teck said in a statement. “The revised proposal does not provide an increase in the overall value to be received by Teck shareholders, or appear to address material risks previously raised.”
Mr. Nagle, who is 48 and was born in Johannesburg, called Elk Valley a “zombie” company because it would pay 90 per cent of its cash flow – through some $14-billion in dividends and royalties – to Teck Metals for about 11 years. He thinks the hefty payments could deprive Elk Valley of the ability to develop its metallurgical coal business. Metallurgical coal is used to make steel; thermal coal, which is one of Glencore’s main products, is burned to produce electricity.
He believes that any new owner of Elk Valley would be encouraged to find legal ways to shrink the payments, deliberately harming the health of Teck Metals. “A new owner of Elk Valley would not be incentivized to maximize cash flow – rather the opposite – and would look for ways reduce the payment commitment to Teck Metals,” he said.
Pierre Lassonde, the wealthy co-founder of Canada’s Franco-Nevada Corp. gold royalty company and ally of Teck’s chairman emeritus, Norman B. Keevil, said he is aware that Elk Valley would be vulnerable to a takeover if the Teck’s spinoff proposal, which goes to a shareholder vote on April 26, is approved. If the spinoff succeeds, Elk Valley would begin trading on the TSX on June 6.
In an interview last week, Mr. Lassonde said that he and a small group of Canadian co-investors were planning to buy a blocking stake in Teck’s spinoff coal company to ensure it stays in Canadian hands. His goal is to collect commitments to buy about $300-million worth of Elk Valley shares, potentially giving the group as much as a 20 per cent stake.
“I would love to own up to 20 per cent of Elk Valley,” Mr. Lassonde said. “It will be a Canadian mining giant and should absolutely stay in Canadian hands.”
RBC Capital Markets analyst Tyler Broda wrote in a note Tuesday that Glencore’s new offer “helps to address some of the key points of the Teck management pushback,” most notably the continuing exposure to thermal coal. He expects some of the B shareholders to pressure Teck’s management into engaging with Glencore.
Mr. Nagle will arrive on Toronto on Wednesday evening to meet with Teck shareholders Thursday and Friday to try to convince them that Glencore’s proposal would generate more value than Teck’s spinoff plan. He also hopes to meet with Teck CEO Jonathan Price, who lives in London and is expected to be in Toronto Wednesday.
Mr. Nagle will also use his time in Canada to tell investors and the media that he is serious about maintaining Teck’s Canadian presence if the Teck-Glencore merger were to happen. He dismissed speculation that Glencore would turn Teck Metals into a branch plant run from Switzerland, noting his company kept Viterra Inc., its Canadian agricultural business, intact with its Canadian head office in Regina, though the CEO is based in Rotterdam.
“The Viterra brand has remained and we are supporting its expansion plan, including building a seed-crushing plant in Saskatchewan” he said. “Glencore has 9,000 employees in Canada.”
The new metals company, which Glencore would call GlenTeck, would run its global mining operations from Toronto or Vancouver, though Mr. Nagle, its proposed CEO, would continue to live in Switzerland, where the head office would be expected to remain. Teck would be given the right to appoint the new coal company CEO. This scenario would also see the Glencore name cease to exist.
So far, Teck has refused to engage with Glencore in any meaningful fashion. Several analysts had expected Glencore to increase its bid as a tactic to try to win over Teck’s Class B shareholders. But at least one major holder of the B shares has already indicated that tactic would not work.
Teddy Molson, partner with U.K.-based Egerton Capital, which holds 11.4 million B shares, said Monday he intends to vote for Teck’s split regardless of how high Glencore bids. He told The Globe that Teck postsplit would be a far more attractive takeover candidate to a much larger field of potential acquirers. It would be foolhardy to entertain offers for Teck in its current format, because apart from Glencore, there are really no other companies that are interested in acquiring a business that is so heavily weighted toward coal, he said.
Christopher LaFemina, analyst with Jefferies, wrote in a note to clients that the latest proposal from Glencore is unlikely to win over the B-shareholders. “The premium offered so far is not high enough to get strong support,” he wrote.
Teck had harshly criticized the creation of a coal company that would be dominated by Glencore’s thermal coal operations.
Thermal coal is considered one of the main causes of global warming and many pension and sovereign wealth funds are shedding their exposure to the fuel. Metallurgical coal is considered more environmentally friendly because it is used to make steel products, such as wind vanes, necessary for the energy transition.
Suncor Energy Inc. says it will cut 1,500 jobs by the end of the year in an effort to reduce costs and improve the company’s lagging financial performance.
Spokeswoman Sneh Seetal confirmed the cuts, saying they will be spread across the organization and will affect both employees and contractors.
Seetal says employees were informed of the cuts in a companywide email from Suncor CEO Rich Kruger earlier this afternoon.
Suncor has been under pressure from shareholders – including activist investor Elliott Investment Management – to improve its financial and share price performance, which has lagged its peers.
Kruger, the former CEO of Imperial Oil Ltd., took the reins at Suncor earlier this spring and has been tasked with turning around the oilsands giant.
Suncor employs people across the country, in the U.S., and the U.K. Its corporate head office is located in Calgary.
This report by The Canadian Press was first published June 1, 2023.
Business
Amazon ordered to pay more than $30M for privacy violations related to Alexa, Ring devices – CBC News
Amazon agreed Wednesday to pay a $25 million US civil penalty to settle Federal Trade Commission (FTC) allegations it violated a child privacy law and deceived parents by keeping for years kids’ voice and location data recorded by its popular Alexa voice assistant.
Separately, the company agreed to pay $5.8 million US in customer refunds for alleged privacy violations involving its doorbell camera, Ring.
The Alexa-related action orders Amazon to overhaul its data deletion practices and impose stricter, more transparent privacy measures. It also obliges the tech giant to delete certain data collected by its internet-connected digital assistant, which people use for everything from checking the weather to playing games and queueing up music.
“Amazon’s history of misleading parents, keeping children’s recordings indefinitely, and flouting parents’ deletion requests violated COPPA (the Child Online Privacy Protection Act) and sacrificed privacy for profits,” Samuel Levine, the FTC consumer protection chief, said in a statement. The 1998 law is designed to shield children from online harms.
FTC Commissioner Alvaro Bedoya said in a statement that “when parents asked Amazon to delete their kids’ Alexa voice data, the company did not delete all of it.”
The Current22:19Amazon losing billions on Alexa voice assistant
The agency ordered the company to delete inactive child accounts as well as certain voice and geolocation data. That order will apply to Canadian customers, as well, the company confirmed in an email to CBC News.
Amazon kept the kids’ data to refine its voice recognition algorithm, the artificial intelligence behind Alexa, which powers Echo and other smart speakers, Bedoya said.
The FTC complaint sends a message to all tech companies who are “sprinting to do the same” amid fierce competition in developing AI datasets, he said.
Amazon said last month that it has sold more than a half-billion Alexa-enabled devices globally and that use of the service increased 35 per cent last year.
Hackers able to access Ring accounts
In the Ring case, the FTC says Amazon’s home security camera subsidiary let employees and contractors access consumers’ private videos and provided lax security practices that enabled hackers to take control of some accounts.
Amazon bought California-based Ring in 2018, and many of the violations alleged by the FTC predate the acquisition. Under the FTC’s order, Ring is required to pay $5.8 million US that would be used for consumer refunds.
Amazon said it disagreed with the FTC’s claims on both Alexa and Ring and denied violating the law. But it said the settlements “put these matters behind us.”
“Our devices and services are built to protect customers’ privacy, and to provide customers with control over their experience,” the Seattle-based company said.
In addition to the fine in the Alexa case, the proposed order prohibits Amazon from using deleted geolocation and voice information to create or improve any data product. The order also requires Amazon to create a privacy program for its use of geolocation information.
The proposed orders must be approved by federal judges.
FTC commissioners had unanimously voted to file the charges against Amazon in both cases.
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US stocks closed lower Wednesday as investors kept a watchful eye on the prospects for the debt-limit deal in an expected House floor vote. Meanwhile, strong US jobs data and China’s economic woes pressured global markets.
The S&P 500 (^GSPC) fell 0.60% while the Dow Jones Industrial Average (^DJI) dipped 0.40% or more than 130 points. The technology-heavy Nasdaq Composite (^IXIC) slipped 0.63%.
US bond yields weakened as investors fretted over the potential impact of the debt-limit deal and reviewed the release of fresh jobs data. The yield on the benchmark 10-year Treasury dropped to 3.62%. The two-year note yields, which are more rate sensitive, slipped to 4.3%, while that on the 30-year bond dropped to 3.84%.
Equities lost steam as the Labor Department reported the number of job openings rose to over 10.1 million, up from economists’ expectations of 9.4 million openings.
The figures underscores “the tightness in the labor market is unlikely to fall off a cliff but rather continue downward on a bumpy path,” Oxford Economics wrote in a note on Wednesday. “While there are some concerns over the veracity of the JOLTS survey due to historically low response rates, the upshot remains that labor market strength remains robust.”
In light of recent economic data, markets are pricing in an increase of 25 basis points in interest rates from the Fed at policymakers’ meeting on June 13-14. On the commodities side, the dollar index rose, while crude oil slid below $70 a barrel.
Still, investors are still very keen on the latest developments in Washington. The debt ceiling agreement negotiated by President Joe Biden and House Speaker Kevin McCarthy passed its first key test on Tuesday when it gained approval from the Republican-led House Rules Committee despite opposition from hard-liners. That cleared the way for the deal to go before the House on Wednesday.
The clock is ticking down, as Congress must race to pass the deal to avoid a catastrophic default by June 5. That so-called X-Date is when the US will run out of money to pay its bills, Treasury Secretary Janet Yellen has warned.
Meanwhile, both Federal Reserve Governor Philip Jefferson and Philadelphia Federal Reserve President Patrick Harker signaled Wednesday that the central bank could pause rate hikes at its next policy meeting. Separately, the economy showed signs of cooling as hiring and inflation slowing, the Federal Reserve said in its Beige Book survey of regional business contacts.
Elsewhere, China’s factory activity slumped to its weakest level for a second straight month, another sign its post-pandemic economic recovery is losing steam. Asian markets tumbled after the release of the data.
On the housing front, mortgage demand dropped to its lowest level since March, while refinancing activity also dampened to another low, the MBA data showed Wednesday.
Meanwhile, in corporate news, Hewlett Packard Enterprise Company (HPE) sank more than 7% after the company posted a revenue miss in its second quarter earnings and slashed its full-year sales guidance.
Still, the run-up in stocks linked to AI was losing momentum, after the buzz around the technology helped boosted the Nasdaq 100 Index (^NDX) on Tuesday. Shares of ChargePoint Holdings, Inc. (CHPT) was flat, while C3.ai, Inc. (AI) dipped more than 8% Wednesday.
In single-stock moves, SoFi Technologies, Inc. (SOFI) shares rallied more than 15% in the wake of the debt ceiling deal. The bill would reinstate government student loan repayments, benefiting the online personal finance company.
Shares of HP Inc. (HPQ) sank more than 5% after the computing giant posted better-than-expected quarterly earnings on Tuesday, but reported sales that fell more than analysts estimated.
Intel Corporation (INTC) shares rose more than 4% after the chipmaker said current quarter revenue is on track to be at the high end of its guidance.
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Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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