Glencore only has eyes for Teck, despite rejection of copper, coal spinoff plan

Glencore PLC is undaunted in its quest to join forces with Canadian miner Teck Resources Ltd. despite the Canadian company's flat rejection of a "merger demerger" offer on April 3, Glencore CEO Gary Nagle said on a same-day conference call.

Under the proposed transaction, Glencore would combine the companies' coal assets into one publicly traded company, and its copper-heavy metals assets into another. The deal structure underscores Glencore's push to separate businesses that produce materials that are carbon intensive, such as coal, and metals that are widely viewed as crucial to enabling the energy transition.

In response to Glencore's proposal, Teck's board of directors said the company is not up for sale while flagging unwanted exposure to Glencore's thermal coal assets and other issues.

Nagle expressed hope that further talks with Teck executives, including CEO Jonathan Price, would help convince Teck shareholders of the deal's merits.

Teck remains the top priority target "bar none," Nagle said. "We're not going to get into plan B, C, D and E, where we want to go for plan A, which makes the most sense for all combined shareholders."

A family matter

Glencore must garner support from the holders of Teck's class A shares, which are largely controlled by Canada's Keevil family. In a separate April 3 statement, Norman Keevil, Teck's chairman emeritus, agreed with the board's decision.

"Now is not the time to explore a transaction of this nature," Keevil said.

Glencore's offer comes less than two months after Teck announced plans to end its dual-class share structure, which gives class A shareholders 100 votes per share at shareholder meetings. The share structure proposal, which would take effect in about six years, will be voted on at an April 26 meeting. Teck hopes the move will open the door to potential deals by simplifying its share structure.

Teck also plans to split up its metallurgical coal and metal assets into separate companies, making it easier for mining investors, wary of carbon-intensive coal assets, to deal with the Canadian company, analysts have said.

Despite the expected change in stock structure, analysts gave Glencore long odds for persuading Teck to do the deal.

"Given the family control of Teck's A shares, we view the likelihood of a successful transaction with Glencore as extremely low, even in the event of an improved offer," Scotiabank analyst Orest Wowkodaw said in an April 3 note.

Glencore may be hoping that its bid for Teck cracks open the deal door a little wider.

"It pushes the envelope to get the family to say, 'Hey, you know, these guys are going to do this anyway. Let's accelerate the process ... six years is a long way down the road,'" said Joe Mazumdar, a mining analyst and publisher of the Exploration Insights newsletter. Mazumdar expects a higher deal value might succeed in swaying the Keevil family.

Glencore did not respond to a request for comment on questions about the rejection and the company's strategy to get backing from Teck's class A shareholders. Teck also did not respond to a request for comment.

Merger, demerger

Nagle made clear on the April 3 call that a merger with Teck was Glencore's favored route to splitting up its coal and metal assets, instead of doing its own asset split ahead of seeking a deal.

"We believe it makes a lot of sense, doing it as one, given that Teck have gone ahead and announced their proposed demerger or spinoff of coal," Nagle said.

If Glencore's deal were accepted, it would create two companies including a diversified coal producer. The other would be a metals company heavily focused on copper, with about 60% of projected EBITDA in 2025 coming from a combined copper unit, Glencore said in an April 3 presentation.

Its project pipeline would also expand, opening up the door to annual production of 3 million metric tons of copper, under a "full potential" scenario outlined in Glencore's presentation, which included undeveloped assets held by both companies.

With the first proposal rejected, Nagle hopes Teck CEO Price will at least be willing to talk about possibilities.

"We have engaged with Teck for some months now, but not substantively," Nagle said, noting Glencore has taken a company-to-company approach and avoided going public with the potential transaction. "I have a very good relationship with Jonathan and we would propose that we sit down with Jonathan and his team."

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