Glencore ups stakes in battle for Teck one week ahead of a crucial shareholder vote

Glencore intensified its battle for Teck Resources TECK-B-T by dangling the prospect of a higher bid as long as shareholders reject the Canadian company’s proposal to split the company in two next week.

In an open letter pitched Wednesday morning to Teck’s Class B shareholders, who own almost all the equity but few of the votes, Glencore CEO Gary Nagle said that, should the vote go against Teck, his company would open negotiations directly with shareholders if Teck continues to resist its offer.

“Glencore is willing to consider making improvements to its proposal,” Mr. Nagle said. “Glencore has never stated that its proposal is ‘best and final’ and that is it not willing to make changes and improvements to its proposal.”

Mr. Nagle’s new pitch came exactly one week ahead of the Teck vote, which requires two-thirds approval by both the Class A and Class B shareholders to succeed. If Teck wins the vote Teck would place its copper and zinc assets in a metals-focused company and spin off its metallurgical coal business, which would pay most of its cash flow to the metals company for a number of years.

Norman B. Keevil, Teck’s Chairman Emeritus, and Japan’s Sumitomo control almost half of the A shares, which have 100 votes apiece. Mr. Keevil and Sumitomo have already committed to endorsing Teck’s split proposal.

Mr. Keevil has said that he would not stand in the way of a deal that would enlarge Teck and deliver considerable value to shareholders if the proposal were to receive the endorsement of the full board and the B shareholders. There is no sign, however, that he or the board would warm to an improved Glencore offer.

Mr. Keevil told The Globe and Mail last week that a higher per-share offer from Glencore would actually make the offer less enticing. That’s because it would result in Glencore “debasing their own currency,” he said in an interview on Friday.

“The [Glencore] shares are worth less and less and less, because there’s so many more of them,” he said.

The Teck board has refused to negotiate with Glencore and has rejected the company’s opening merger offer as well as sweetened offer that proposed buying out for cash any Teck shareholders who did not want equity exposure to the new coal company.

Glencore is gambling that the prospect of a higher price will convince the holders of the single-vote B Shares to reject the Teck restructuring.

It is not known which way Teck’s B shareholders are leaning, as the Teck split vote approaches, since investors typically make up their minds on which way to go only shortly before the vote. On Monday, Teck CEO Jonathan Price expressed confidence that the company’s biggest B-shareholder, China Investment Corp., will vote for Teck’s proposed split. CIC owns 10 per cent of the B shares.

Mr. Nagle has said that Glencore will drop its bid if Teck wins the vote. Glencore has offered to merge its metals assets with those of Teck’s, then form a separate company that would hold the two companies’ thermal and metallurgical coal businesses. The offer was delivered last month at a 20-per-cent premium.

“We affirm Glencore’s proposal will stand and remain valid if Teck delays its shareholders’ meeting or Teck shareholders vote down the proposed Teck separation,” Mr. Nagle said. “Glencore is willing to make an offer directly to Teck shareholders if the proposed Teck separation does not proceed.”

In the event of both Teck’s split getting voted down, and Teck subsequently refusing to engage with Glencore, Jefferies analyst Christopher LaFemina predicts the dynamic of the deal will change dramatically.

“We believe this becomes a takeover rather than a merger. There is no more GlenTeck if a deal is consummated in that case, ” he wrote in a note to clients. ”It would be Glencore, and Glencore’s management takes control in that case. This reminds us in many ways of the Glencore playbook when it acquired Xstrata ten years ago.”

Source link