Teck Resources’ decision to overrule a shareholder vote on its spin-off plan could be seen as a victory for Switzerland’s Glencore in its campaign to acquire the Vancouver-based mining company.
But Teck remains adamant: the commodity giant’s offer remains unattractive in its eyes, and its chief executive, Jonathan Price, added on Wednesday that the company may be more receptive to other suitors.
“We have high-end activities. And when it comes to mergers and acquisitions, we strongly believe that competition for assets drives value,” Price said on a conference call with analysts.
Teck announced, just hours before its annual meeting on Wednesday, that it would not vote on its plan which would see it split its metallurgical and steelmaking coal businesses into two separate companies.
The move suggests that the company did not expect to obtain the required two-thirds shareholder approval for its proposal which would effectively create two entities: Teck Metals and Elk Valley Resources (EVR).
Glencore, which declined to comment on the matter on Wednesday, had urged Teck shareholders to reject their company’s plan. The Swiss has always maintained that it could not proceed with its proposal if the plan to split Teck’s activities were implemented, since that would make the operation much more complex.
Analyst Cole Smead of Smead Capital Management said it was clear that at this stage Glencore had the upper hand.
“I think everyone should have expected that. Frankly, Glencore knows more about commodity markets than anyone, in my opinion,” Smead observed in an interview.
“If you’re playing and that kind of person ends up on the other side of the table, you should probably go play another game.”
Teck wants to expand its production of copper and zinc to meet growing global demand for these metals, both of which are used in the production of electric vehicles and seen as key resources for the upcoming energy transition.
By separating its steelmaking coal assets from its metals business, the company hoped to attract investors who are keen on copper and zinc opportunities but who are unwilling to invest in coal due to environmental, social and governance (ESG).
Other suitors?
Teck chief executive Jonathan Price argued that its shareholders had clearly expressed an interest in the idea of a split, but that the latter should favor a “simpler and more direct approach”.
He, however, declined to say whether Teck had been approached by other potential buyers.
“I’m not going to speculate in detail on that,” Price said. But suffice it to say that the process we have been through over the past two months, which of course has been very public, has generated significant interest for both companies, EVR and Teck Metals. And it is very clear that the value of these companies is well recognized. »
Mr Price suggested that other buyers could emerge once Teck separates its coal assets from its metallurgical business.
We expect there to be a lot more interest in businesses on a stand-alone basis. And that’s one of the reasons we continue to believe that splitting up is the right way to go here.
Jonathan Price, CEO of Teck
But Mr Smead believes Glencore will eventually prevail, mainly because other potential bidders may only be interested in the metals component of Teak.
“You are back to this conundrum: what will happen to the coal assets? And Glencore provides that ‘output’, they say ‘no, we want the coal assets’,” Mr Smead stressed.
“Glencore wants to be involved in these companies — Teck doesn’t. And that’s the distinction, which is why I think the family is going to lose control. Because they don’t want to end up in the business they built, they just want to end up in one part of it. »
Teck is controlled by the Keevil family, which owns the company’s Class A shares along with Japanese company Sumitomo.
Norman Keevil, chairman emeritus of Teck, said earlier this month that Glencore’s offer is the wrong proposal at the wrong time. He added, however, that he was ready to discuss other possible transactions once the company completes its own plan to spin off.
A sense of economic nationalism
The unsolicited bid for Canada’s largest diversified mining company by an international giant has sparked feelings of economic nationalism.
British Columbia Premier David Eby, the Mining Association of BC, as well as the Greater Vancouver Board of Trade have expressed concern about the potential for job losses and questioned Glencore’s record on factors ESG.
In a letter to the Greater Vancouver Chamber of Commerce dated April 24, three federal cabinet ministers said Ottawa was monitoring the situation “very closely.”
“We need companies like Teck here in Canada,” reads the letter signed by Deputy Prime Minister Chrystia Freeland, Industry Minister François-Philippe Champagne and Resources Minister natural, Jonathan Wilkinson.
It remains to be seen whether Ottawa would go so far as to block a possible acquisition of Teck by Glencore. Some observers have pointed out that the presentation of Glencore’s bid for the Canadian company comes at the same time as the government has pledged to put in place a national strategy on critical minerals, as part of its comprehensive climate plan.