The Teck Sweepstakes, Round 2

In the second round of the Teck and Glencore corporate soap opera, Glencore responds to Teck’s rejection with the following:

Glencore continues to believe that CoalCo’s combined thermal and coking coal assets would position it as a leading, highly cash-generative bulk commodity company which would attract strong investor demand given its yield potential. However, Glencore acknowledges that certain Teck investors may prefer a full coal exit and others may not desire thermal coal exposure.

Accordingly, Glencore has proposed to the Teck Board to introduce a cash element to the Proposed Merger Demerger to effectively buy Teck shareholders out of their coal exposure such that Teck shareholders would receive 24% of MetalsCo and US$8.2 billion in cash. This valuation is in line with both (i) the implied enterprise value of Elk Valley Resources (“EVR”) and the Transitional Capital Structure owned by Teck shareholders based on the Nippon Steel investment under the proposed standalone separation into Teck Metals and EVR (the “Proposed Teck Separation”), and (ii) the upper end of the valuation ranges of EVR provided by Origin Merchant Partners, in its fairness opinion to the Special Committee of the Teck Board.

Glencore clearly knows that Teck is going to reject this proposal, but they still want to keep in the limelight for the next couple rounds of this drama. There’s more action to come before the April 26, 2023 meeting to confirm (or reject) Teck’s proposal to its shareholders.

My guess is that Glencore will be offering around CAD$70/share for Teck in some very strange contingently valued offer (least of which is that the April 26 meeting no longer take place). Money speaks, and this situation is certainly no exception. It’ll probably be a good time to punch out the clock at that point – this is faintly reminding me of what happened to Potash Corp (now Nutrien) roughly a decade back.