Teck Resources Ltd. said Monday it had rejected an unsolicited takeover offer from Swiss mining giant Glencore that comes as the Vancouver-based miner is working toward its own restructuring.
Glencore has framed the offer as a merger that would benefit all shareholders, while its offer of 7.78 Glencore shares for each Teck Class B subordinate voting share represents a 20 per cent premium on the date of the offer.
“This is not a cash buyout. This is not a purchase, this is not a sale of Teck,” said Glencore chief executive Gary Nagle on a conference call Monday.
“This is a merger on a 76-24 ratio basis with a premium, where all shareholders will get to benefit in these fantastic synergies.”
In rejecting the offer, Teck said it wasn’t considering a sale at this time, that the timing was opportunistic as it has just started ramping up copper production at a major expansion project in Chile and that the deal spanning many countries has a high execution risk because of regulatory uncertainty.
Glencore has proposed taking on the whole of Teck and then splitting up the metals side of both companies along with parts of Glencore’s marketing business into one company, and the combined coal and some other related assets into another company.
Teck said it prefers its own plan, announced in February, that would similarly see it split up its metal and coal businesses into two companies.
“The special committee and board remain confident that the proposed separation into Teck Metals and Elk Valley Resources 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,” said board chair Sheila Murray in a statement.
The Glencore deal would also expose Teck shareholders to a large thermal coal business and oil trading business that are contrary to Teck’s environmental commitments, said chief executive Jonathan Price.
In arguing for the deal, Glencore said it expects at least US$4.25 billion in post-tax synergy value, that Teck shareholders would be well positioned to seeing value creation, and that it has committed to having the head office of the metals company be based in Canada.
Glencore said it had spoken with Teck’s board about a possible deal in the past but decided to take its offer public after being rebuffed.
Teck’s board said in its official letter rejecting the deal that it found the strategic logic for the proposed combination to be weak.
“Exposing our shareholders to your large thermal coal business would be value destructive and would drive away investors who cannot hold thermal coal assets,” the board said.
Teck said its recent divestment of its oilsands business had already attracted new investors, and Glencore’s plan to include its oil trading business in the combined metal business would go against the environmental concerns of current investors.
The purported synergies meanwhile appeared to be “ill-defined, potentially overstated and challenging to realize,” it said.
Teck’s concerns seem legitimate, and its own restructuring plan likely better for shareholders, said National Bank analyst Shane Nagle in a note.
“While Glencore’s proposal would result in a more immediate separation of the coal business, a straight split of the companies would likely result in more value destruction for current Teck shareholders than the proposed spin-out of Elk Valley Resources given increased jurisdictional risk as well as increased exposure to coal and oil.”
While the outcome of the deal is uncertain, investors have responded to the bid by boosting Teck’s Class B share price by $6.86, or 13.9 per cent to $56.21 as of midday trading on the Toronto Stock Exchange.