Glencore Plc proposed buying Teck Resources Ltd.’s coal business as an alternative to its $23 billion takeover bid that the Canadian miner has repeatedly rejected, presenting the last twist in a fight that has transfixed the mining world for months.
(Bloomberg) — Glencore Plc proposed buying Teck Resources Ltd.’s coal business as an alternative to its $23 billion takeover bid that the Canadian miner has repeatedly rejected, presenting the last twist in a fight that has transfixed the mining world for months.
Glencore has offered to buy the unit for cash, combine it with its own coal assets and then create a separate company within a year or two after paying down debt. Teck confirmed it was engaging with Glencore on the preliminary, nonbinding proposal, among others, while Glencore reiterated its bid for all of Teck remains on the table.
The discussions represent a potential dialing back of hostilities after the two companies spent the last few months in a public and acrimonious battle over Glencore’s unsolicited offer to buy Teck and then split the combined businesses into metals- and coal-focused companies. Teck has repeatedly insisted Glencore’s bid was a non-starter, and had so far refused to enter talks this year.
The latest Glencore proposal could present a solution to some of Teck’s biggest problems. The company wants to split out its coal business but was forced back to the drawing board after canceling a shareholder vote on a spinoff in late April, when it wasn’t able to muster enough support for the plan. And Teck’s coal operations are still a key source of funding for its copper growth plans, so a cash offer for the unit could be key.
Teck said that while it’s engaging with Glencore, there’s no guarantee a deal will be done. The Canadian miner also said it’s talking to other parties. The companies didn’t give further details, however the valuation of Glencore’s proposal was broadly in line with the $8.2 billion in cash it offered to pay Teck shareholders to buy out their coal exposure in its earlier takeover offer, according to people familiar with the matter.
For Glencore, the deal would present a way to exit the hugely profitable but polluting thermal coal business by combining it in a new company with Teck’s steelmaking coal operations.
However, the coal would represent a disappointing second prize to Teck’s lucrative copper mines, which have long been seen across the industry as crown-jewel assets coveted by other large producers. In its original plan, Glencore would have transformed into one of the biggest metal miners, poised to benefit from surging demand as the global economy decarbonizes.
“We would view the sale of the coking coal assets to Glencore as an attractive ‘middle ground’ for both companies,” Deutsche Bank analyst Liam Fitzpatrick said. “It would provide Teck with a cleaner exit from coal and allow Glencore to split its own business into CoalCo and MetalsCo.”
Teck shares fell 1% in Toronto by 3:20 p.m. on Monday, while Glencore closed 0.5% higher in London.
If the proposal succeeded, Glencore said Monday it would plan to spin off its own thermal coal operations combined with Teck’s steelmaking coal mines in about 12 to 24 months after the business’s net debt had been cut by half to about $5 billion.
Glencore has come under increasing pressure for its continued ownership of coal mines from its investors, with almost 30% of shareholders backing a resolution urging the company to explain how its thermal coal business aligns with efforts to limit the increase in global temperatures to 1.5C.
While many rivals have long retreated from thermal coal under pressure from investors, Glencore has continued reaping massive profits from mining the dirtiest fossil fuel. The company has repeatedly said it has no plans to do so, other than as part of a deal, unless the majority of its shareholders demand it.
Teck and its controlling shareholder have repeatedly rejected Glencore. Glencore, which has said it was willing to increase its offer for all of Teck and go directly to investors if the board didn’t engage, has still not improved its offer.
A full takeover of the business would require the support of controlling shareholder Norman Keevil, who holds an effective veto through Teck’s “supervoting” A Class shares and has said he is not interested in a deal with Glencore.
–With assistance from Jacob Lorinc.
(Updates with detail on valuation of proposal in fifth paragraph.)
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