Canadian zinc and copper miner Teck Resources has rejected a $US23 billion ($34 billion) merger with Glencore, saying it’s reluctant to expose shareholders to risky oil and thermal coal assets.
Glencore sought to merge with Teck Resources while simultaneously spinning off two combined thermal and steelmaking coal businesses into stand-alone companies.
According to Glencore, the first of these spinoffs, MetalsCo, would become a world-class base metals business with a diversified portfolio.
CoalCo – the other proposed spinoff – would be a highly lucrative coal and carbon steel materials business.
Glencore and Teck shareholders would own roughly 76 per cent and 24 per cent of the merged entities, respectively. Glencore forecasts between $6.2 billion to $7.7 billion in synergy value after tax.
Glencore’s offer comprised an exchange ratio of 7.78 Glencore shares for each Teck B share, and 12.72 Glencore shares per Teck A share. The offer represents a premium of 22 per cent based on Teck’s closing price at the end of last week.
But Teck is already in the process of splitting its businesses down the middle. The Canadian company is poised to spin off its steelmaking coal as Elk Valley Resources, while the main body rebrands to Teck Metals.
This was the change on which Glencore was looking to capitalise.
“Glencore believes that the proposed merger demerger is compelling and would create significant value for both Teck and Glencore shareholders,” Glencore said in a statement.
“The proposed merger demerger would create two standalone companies with substantially larger and more diversified portfolios of assets than those of the proposed standalone Teck Metals and Elk Valley Resources.”
But Teck Resources was clear in its rejection of the Australian the mining giant.
“The board is not contemplating a sale of the company at this time,” Teck board chair Sheila Murray said.
“We believe that our planned separation creates a greater spectrum of opportunities to maximise value for Teck shareholders.
“The … 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.”
Teck also cited an apprehension to expose its shareholders to some of Glencore’s riskier assets.
“The Glencore proposal would expose Teck shareholders to a large thermal coal business, an oil trading business and significant jurisdictional risk,” Teck chief executive officer Jonathan Price said.
“All of which would negatively impact the value potential of Teck’s business, is contrary to our ESG (environmental, social and governance) commitments and would transfer significant value to Glencore at the expense of Teck shareholders.”
Industry analysts are anticipating a higher offer from Glencore, as reported by Reuters.
It’s uncertain, however, if a higher offer would be enough to make Teck budge.