GlenTeck: the copper/coal drama continues

3 min read

Updated meme

Last February, Teck Resources announced its intention to split the company into 2 separate publicly-listed entities: one for metals and one for steelmaking coal.¹ Glencore noticed and is now proposing a merger with Teck and a simultaneous demerger of the combined coal business.²

While the Glencore deal is less greenwash creative than the initial Teck proposal³, the rationale is the same: get a higher valuation multiple for the copper assets. The stock market would rerate GlenTeck (MetalsCo) and the combined CoalCo would become the new ESG reject.

Teck has already declined Glencore’s offer for 3 reasons:

1. valuation risk

2. jurisdictional risk

3. ESG risk

First, Teck sees the proposal as opportunistic and value destructive for shareholders.⁴ That’s fair because the company’s flagship copper project is ramping up. Besides, you don’t want to negotiate with Glencore’s traders; there is a good chance they will get the better end of the deal.

Second, Glencore operates in more than 35 countries around the world.⁵ A merger would take time and require approval from many regulatory bodies. It would also expose Teck shareholders to higher-risk jurisdictions such as Congo.

Third, the transaction would lower Teck’s ESG score since MetalsCo would inherit Glen’s oil trading business and CoalCo would primarily produce thermal coal.

Again, the real issue is not carbon but maximizing the share price. From the news release:

The Glencore proposal would force Teck shareholders to hold massive thermal coal exposure, which would drive away current and future investors who cannot hold thermal coal assets, and result in Teck’s world-class steelmaking coal business trading at a discount.

The wording of the board letter is even stronger, calling Glencore’s merger logic weak and synergies ill-defined. Teck also states that there has not been any meaningful discussions regarding such a transaction with Glen in over 2 years. So it’s safe to assume GlenTeck will not become a thing.⁶

However, it will be interesting to see if Teck changes its tone after the spin-off of the met coal business (subject to shareholders’ vote on April 26), and whether Glen still cares for either coal or copper assets, or both.

1. See previous post for details on the initial Teck proposal (Teck Metals and Elk Valley Resources)

2. Glen’s news release

3. MetalsCo would not have to rely on cashflows from CoalCo. See #4 in Glen’s proposal letter

4. TECK 0.00%↑ news release

5. Glen’s map

6. Glencore & Teck could still work together through a joint venture or other arrangement at the asset level (around Collahuasi and QB2)