How Glencore, the shark in the resources pond, could still win Teck – though it’s a long shot

Open this photo in gallery:

Ivan Glasenberg was known as the great white shark of global resources industry when he was running Glencore, GLNCY the world’s biggest commodities trader and one of the biggest mining companies. He never shied away from tough, even seemingly impossible, takeover battles and won more than he lost.

Take the epic fist fight in 2005 and 2006 for Canada’s premier nickel mining companies, Falconbridge and Inco. At the time, Glencore was private but owned 40 per cent of Xstrata, which in effect operated as Glencore’s listed machine for mergers and acquisitions. (In 2011, Glencore joined the London Stock Exchange and bought all of Xstrata two years later.)

The takeover attempts for the two companies turned global and it appeared that Glencore-Xstrata would face a humiliating retreat. Xstrata nailed a quarter of Falconbridge and wanted the rest, but Inco signed what looked like an airtight deal to merge with its rival. Xstrata responded by launching a hostile bid for Falconbridge, then Vancouver’s Teck Resources, American copper giant Phelps Dodge and Brazil’s Vale entered the fray.

The battle for the Canadian companies turned chaotic, nasty, crazy expensive and entirely unpredictable. Yet Xstrata-Glencore ultimately won Falconbridge, while Inco went to Vale. Mr. Glasenberg placed his Canadian trophy on his desk and Glencore emerged as leading producer of the nickel required for the green energy revolution.

Mr. Glasenberg, now 66, stepped down as Glencore’s CEO in 2021 and was replaced by fellow South African Gary Nagle. But Mr. Glasenberg owns 10 per cent of the enormous company and, behind the scenes, is working hard to ensure that Glencore’s return to the takeover game in Canada succeeds. Glencore is going after Teck, Canada’s last diversified mining company of any size – the rest were gobbled up by foreigners, their head offices largely dismantled, their names eradicated.

Glencore proposed a US$23-billion all-share merger with Teck to create a base metals giant. That would be step one; step two would see Glencore and Teck spin off their coal businesses into a separate company. Teck rejected Glencore’s first offer in no uncertain terms.

Ditto the second attempt earlier this week, in which Glencore offered US$8.2-billion in cash to buy Teck shareholders out of their stake in the coal company. The idea of mixing two types of coal – thermal and metallurgical, the former deeply unpopular with climate-friendly funds – does not sit well with some shareholders, so Glencore gave them a way out. Teck CEO Jonathan Price called the second pitch a “non-starter.”

The odds of winning Teck seem stacked against Glencore, more so than they were for the lunge for Falconbridge 17 years ago. That’s because Teck chairman emeritus Norman B. Keevil is guarding Teck’s Canadian identity jealously and does not have to put the company in play for the very good reason that he and his ally, Sumitomo Corp. of Japan, own almost half of the supervoting A shares.

That means they can block any deal, even though their equity interest is only about 1.3 per cent. Hardly democratic, but the lopsided share structure has been in place since 1969 and Teck has always taken the view that investors who disapprove of the A shares’ overwhelming power can hit the road.

The Keevil family, supported by Mr. Price and the company’s board, want to turn Teck into a pure base-metals company by spinning off the coal assets into a new company called Elk Valley Resources. That proposal goes to a shareholder vote on April 26.

How could Glencore overcome such formidable obstacles? Not easily, but there is zero sign that Mr. Glasenberg and Mr. Nagle are about to call it quits – the opposite, really. There is a scenario that could see them come out on top, though it’s a long shot.

The Glencore proposal has merits, even though mixing thermal and metallurgical coal seems awkward. The deal would see billions of dollars in synergies – the two companies have a few overlapping operations beyond Canada – and create two world-class companies, one in base metals, the other in coal.

Those merits may be enough for the holders of Teck’s single-vote B shares to reject Teck’s spinoff idea later this month. Or, Teck might suspend the vote if its proxy firms conclude the two-thirds hurdle cannot be cleared.

At that point, Glencore could very well bump up its offer by improving the share-exchange ratio, winning the hearts and minds of the B shareholders. If those shareholders were to get angry enough at Mr. Keevil for blocking the Glencoe deal, he may buckle.

Or maybe not; he has shown no love for Glencore. The risk for Glencore is that any decision by Mr. Keevil to put Teck into play could trigger a flurry or rival bids.

Teck has a lot of copper, an essential energy-transition metal used in electric vehicles. Mining giants such as Anglo American might covet Teck, though some potential bidders would be put off by its coal business. Glencore’s advantage is that it wants more coal, not less.

Mr. Glasenberg almost never gives interviews, so the views on how he or and Mr. Nagle could make Mr. Keevil blink are not known. What is known is that Glencore is clever, aggressive and enjoys a good fight. Glencore-Xstrata’s dark magic won them Falconbridge. It is not out of the question Glencore could win Teck. Mr. Keevil’s resounding “No” does not mean this story is over.