Teck Resources has cancelled the vote on the spin-off of its coal assets just hours before the shareholder meeting, potentially giving momentum to Glencore’s bid to acquire the company. Teck and Glencore both spent three weeks lobbying for the decision. Teck turned down Glencore’s $23 billion takeover offer earlier this month, preferring to concentrate on copper and zinc mining. Glencore intends to buy Teck and merge their metals and coal businesses to form two new companies. The takeover battle has broader implications for the global mining industry, as it marks the public return of the world’s largest producers to large-scale mergers and acquisitions after years on the side lines.
The cancelled vote is a significant setback for Teck, but any takeover would still require the approval of controlling shareholder Norman Keevil, who wields an effective veto over Teck through its “super voting” A Class shares. The focus now shifts to Glencore, which has dangled the prospect of a higher offer, and whether Teck’s own investors will put pressure on the company to enter negotiations.
Teck has stated that it will continue to pursue the company split and that its position on Glencore’s offer has not changed. It will take shareholder feedback into account before presenting a new proposal. The vote had devolved into a battle over Teck’s future, with Glencore claiming that if the spinoff was approved, its proposal would be dead, as it attempted to persuade shareholders to vote “no” and put pressure on the company to engage.
Glencore intends to acquire Teck and combine their metals and coal businesses to form two new companies. The agreement would give Glencore control of Teck’s profitable copper mines at a time when the world is concerned about a shortage, while also allowing Glencore to exit the profitable but polluting thermal coal business. Teck had proposed forming a new steelmaking coal company called Elk Valley Resources that would pay a royalty to its remaining metals business for several years. The continued relationship between the two companies would have hampered its appeal to investors who no longer wanted to be exposed to coal. Glencore, on the other hand, had offered to pay cash to Teck investors to buy them out of the companies’ combined coal businesses.
According to Nick Giles, an analyst at Lucas Pipes, the cancelled vote “opens up several new possibilities, such as an improved proposal from Glencore, a separate sales process for the coal assets, or an immediate spinoff of the coal business.”
Teck, which has repeatedly rejected Glencore, had previously stated that it would be willing to discuss takeover offers for its metals business following the spinoff, and had even hinted at a bidding war. The board’s position, however, was weakened when two powerful shareholder advisory firms, Glass Lewis and Institutional Shareholder Services, both recommended voting against the Teck plan.
The shareholder meeting in Vancouver went ahead as planned, with Teck’s CEO holding a conference call prior to that to discuss the first-quarter results. The resolution on the split required two-thirds approval from both classes of shareholders separately—the A-Class “super voting” stock dominated by Teck’s founding Keevil family, as well as regular B-class shares. While several smaller investors have spoken out in support or opposition to Teck’s plan, the company’s largest shareholders have remained silent. China Investment Corp., China’s sovereign wealth fund, holds about 10%, followed by BlackRock Inc. and Dodge & Cox.
“Teck’s late withdrawal of its separation plan from today’s AGM appears to reflect significant shareholder concerns that the plan is overly complicated,” Bloomberg Intelligence analysts said. “Glencore will see this climbdown as an opportunity to re-establish its merger proposal, which will need to be improved in order to win broad shareholder support.”