Teck Resources rejects unsolicited bid from Swiss mining giant Glencore

Teck Resources Ltd. TECK-B-T said it has rejected an unsolicited takeover proposal from Swiss mining giant Glencore PLC.

Calling the offer opportunistic and not ESG friendly, considering Glencore’s considerable exposure to thermal coal and oil, Vancouver-based Teck said it had no interest in being acquired.

“The board is not contemplating a sale of the company at this time,” said Sheila Murray, Teck’s chair, in a statement.

Teck earlier this year said it plans to separate its metallurgical coal business from its copper business and collapse its dual share class structure. If the deal closes as planned, about 90 per cent of the cash flow from Teck’s coal business would be funneled back into the copper segment for the foreseeable future.

The split was necessary because investors have long given a much lower valuation to Teck’s legacy dirty coal business compared to its growing copper segment.

Teck said that Glencore’s offer amounted to a 20-per-cent premium to the market price on the day it was made, consisting of 7.78 Glencore shares for each class B share, and 12.73 Glencore shares for each Class A share.

Glencore also planned to split itself up as part of that process, creating a base metals unit, oil and commodity trading business, as well as a thermal coal and metallurgical coal business.

The proposal “would force Teck shareholders to hold massive thermal coal exposure, which would be value destructive, drive away current and future investors who cannot hold thermal coal assets, and result in Teck’s world-class steelmaking coal business trading at a discount,” Teck said.

Teck just last week said it has succeeded in putting its QB2 copper mine in Chile into production. The project will be instrumental in rebalancing Teck’s portfolio towards copper, a metal that investors have gravitated towards considering its uses in cleaner energy sources. Teck is also a major miner of zinc.

“The special committee and board remain confident that the proposed separation into Teck Metals and Elk Valley Resources (EVR) is in the best interests of Teck and all its stakeholders, is a much more compelling transaction and does not limit our optionality going forward,” Teck said.

Shares in Teck have fallen about 17 per cent since the company announced plans in February to split the company.

However, insulating Teck from an unwanted takeover offer is the dual class shares, which give select investors, such as the Keevil family, far more votes than common shareholders in a takeover deal, and essentially a veto right.

Norman Keevil said in a statement on Monday that he “unequivocally” supports the board’s decision to reject Glencore’s offer.

Glencore already has a significant presence in Canada owing to its 2013 acquisition of Xstrata. In 2006, Xstrata acquired Falconbridge Ltd., one of Canada’s biggest base metals miners.

This isn’t the first time that Glencore has explored the idea of buying Teck. In a recent letter from Teck’s chair Sheila Murray to Glencore chair Kalidas Madhavpeddi, it was revealed that the two mining companies had engaged in talks in 2020, regarding a similarly-structured transaction, but Teck’s board rejected the idea.

Tyler Broda, an analyst with RBC Dominion Securities Inc. said in a note to clients that the takeover offer, which values Teck at US$23.1-billion, is “relatively modest,” and potentially leaves room for a higher bid from Glencore. But he also pointed out that the class A shares held by the Keevil family amount to a “blocking stake,” which appears to scupper any chance of a transaction.

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