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While the offer represents a move in the right direction towards appeasing Canadian miner Teck Resources shareholders, the next step depends on whether Teck’s class B investors hold their nerve and back management to separate the Canadian firm into two companies – completely independent of Glencore – at the end of this month.
A little recap of the past two months explains how we got here.
Back in February, Teck proposed to separate into two independent, publicly-listed companies: a base metals company called Teck Metals Corp and a steelmaking coal producer called Elk Valley Resources Ltd.
That deal is to be voted on at an annual general meeting in Vancouver, Canada on April 26, and requires approval by two-thirds of shareholders.
Then along came multi-metal miner and trader Glencore, proposing what it called a merger with Teck followed by a demerger to split the combined business into metals and coal.
The deal, which Teck termed an “opportunistic acquisition proposal” and quickly rejected, was an all-share offer, which has now been enhanced with a cash portion.
So, pros and cons of the deal aside, what next?
Teck shares are divided between A and B holders, and it is how the voting rights of these shares are divided that gives the company some comfort, for now at least.
Teck’s dual-class shareholding structure gives its A shareholders 100 votes for every 1 vote of a B shareholders. As a result, Teck’s A shares owners are fewer in number but currently hold 60.50% of voting rights compared with the significantly larger group of B shareowners, which hold the remaining 39.50%.
The A shares are mainly owned by Japan’s Sumitomo Metal Mining Co and the Keevil family, largely through their joint ownership of the Temagami Mining Company. In total, Sumitomo and the Keevil family have locked up a 45.10% share of votes in Teck, giving them blocking rights in any vote requiring a two-thirds majority.
They clearly intend to use that block. Through Norman Keevil, Teck’s chairman emeritus, the Keevil family has rejected Glencore’s proposal, saying that “now is not the time to explore a transaction of this nature.”
Given the weight of the A shareholders and their opposition to the Glencore proposal, one strategy for the Switzerland-based company is to persuade as many of Teck’s B shareowners as possible to vote against Teck’s own proposed separation on April 26.
That includes Fullbloom Investment Corporation, a wholly-owned subsidiary of China Investment Corporation, which owns around 10% of the B shares and has a 4.10% share of overall voting rights. There are no other B shareholders with equity stakes above 10%.
Yet this still wouldn’t give Glencore’s deal the backing it needs; shareholders aren’t voting directly on that. As Teck chief executive officer Jonathan Price said on a call with analysts this week: “A vote against the separation is a vote to maintain the status quo at Teck, and there is no path that includes Glencore acquiring Teck.”
However, it might allow enough turnover of the Teck share register to create an exit of long-term holders and the entry of hedge funds, whose loyalty is not to Teck but to the cash they could potentially earn in the short-term from a Glencore deal.
A vote against Teck’s separation by B shareholders would also potentially give Glencore a stronger bargaining chip with Teck’s A shareholders – after all, it’s never a good look when your investors don’t support your board’s plans.
In other words, it wouldn’t deliver Glencore the deal, but it could put the miner-marketer in a stronger position than it is now.
In Hotter Commodities, special correspondent Andrea Hotter covers some of the biggest stories impacting the natural resources sector. Sign up today to receive Andrea’s content as it is published.