Some deals are just too good to pass up. Glencore’s bid for Teck is not one of them. The Switzerland-based miner and commodities trader wants to buy the Canadian miner for about $23bn in shares. Teck has rebuffed Glencore’s approach. It has plenty of reasons to hold out for a better offer.
For a start, it prefers its own restructuring plans to Glencore’s. The latter would demerge Teck’s coal assets and spin them out as a separate listed company codenamed CoalCo. It would combine the two company’s metals mining assets, named MetalsCo, for the moment.
On paper this makes some sense. Teck’s two giant copper mines in Chile have some overlap with Glencore’s.
But Teck has its own plan for a split. The Canadian miner hopes its version of MetalsCo would benefit just as much from a higher valuation if separated from coal. Coal is a big money spinner, to which Glencore is famously, if uncomfortably, wedded. But Teck knows shareholders are wary of investing in it.
Teck is controlled by the Keevil family through a dual-share structure, They hold A shares with 100 times the voting power of widely traded B shares, giving them a majority of the votes. That would explain a higher offer premium against a three-month average for the A shares at 43 per cent compared with 20 per cent for the B shares.
Glencore’s approach is opportunistic, offering 7.78 Glencore shares for each B share, the equivalent of where they traded at the start of March. It is also less than Teck’s average trading price over the past 12 months. For each A share, the London-listed miner is promising to exchange 12.73 of its shares.
Working backward from $4.25bn-$5.25bn in capitalised after-tax cost savings stated by Glencore, a deal could generate annual pre-tax savings of about $750mn-$800mn. On these numbers, it appears that the offer ratio would need to improve by at least a tenth for both share classes.
Glencore needs to sweeten its offer — or at least include a cash component if it hopes to win over the Keevil family. The current approach looks like a long shot.
