Open Letter to Teck Class B Shareholders
19 April 2023
Today, Glencore plc released the following open letter to the Class B Shareholders of Teck Resources Limited.
19 April 2023
Dear Teck Class B Shareholder
Re: Proposal for All-Share Merger between Glencore and Teck and simultaneous demerger of combined coal and carbon-intensive businesses
We have sought to engage with your Board regarding our proposal, but your Board has consistently refused any engagement.
While we have been able to meet directly with many shareholders, we are writing to all shareholders directly to inform you about certain important matters regarding our proposal for an all-share merger between Glencore and Teck and the simultaneous demerger of the combined coal and carbon-intensive businesses (the “Proposed Merger Demerger”). Under our revised proposal, we also include a cash component, to buy shareholders out of their coal exposure such that Teck shareholders would receive up to US$8.2 billion in cash or 24% of CoalCo.
We continue to believe that the Proposed Merger Demerger being a merger and not a takeover, is demonstrably superior to the Proposed Teck Separation. It provides the most compelling value proposition to Teck shareholders, who would fully and disproportionately participate in the value creation, synergies and upside.
Glencore’s Proposal has a clear value proposition and is superior across all key parameters
Our proposal offers several superior features that would provide meaningful value creation for Teck shareholders, which are not afforded to them under the Proposed Teck Separation. These include:
- Meaningful upfront premium
- Creation of a scaled and standalone MetalsCo
- Full separation of CoalCo
- Cash option, in lieu of CoalCo exposure
- Further upside from synergies
- Further upside from immediate re-rate potential
- Full and equal shareholder voting rights at closing
We have provided a summary presentation that further illustrates the enhanced value created through our proposal, specifically in comparison to the existing Proposed Teck Separation, which is not in fact a clean separation from coal. This presentation is available on our website at the following link
We would also welcome equal shareholder participation and our transaction structure has the effect of immediately eliminating any special voting arrangements, as well as any contractual restrictions that exist for certain shareholders, so that all investors would be able to vote on an equal basis and could increase or decrease their stake in MetalsCo without restrictions. This would ensure that the interests of Teck shareholders are truly protected and all parties are better aligned around creating maximum value. Our cash alternative to CoalCo shares would also provide investors who are not able/prefer not to hold pureplay coal exposure with certain liquidity, at an attractive valuation, immediately upon demerger.
Glencore’s Proposal will stand and Glencore is willing to make an offer directly to shareholders if there is no engagement
We affirm Glencore’s proposal will stand and remain valid if Teck delays its shareholders’ meeting or Teck shareholders vote down the Proposed Teck Separation on 26 April 2023. Glencore is willing to make an offer directly to Teck shareholders if the Proposed Teck Separation does not proceed and Glencore believes that this is required where there continues to be no engagement from the Teck Board. We note that proxy advisors have recommended that Teck meet with Glencore to explore improvements or refinements to our proposal and Teck has responded to the effect that there is no purpose to this engagement as Glencore is fixed and final in its position, which has never been the case.
Glencore is willing to consider making improvements to its proposal
Glencore has never stated that its proposal is “best and final” and that it is not willing to make changes and improvement to its proposal.
Glencore believes that any such improvements are best considered following engagement by the Teck Board which would allow the parties to jointly explore ways that Glencore could alter its proposal to address any issues raised by Teck management or Teck’s Board.
In fact, we believe that with engagement, we could improve our proposal’s terms and value, which would be in the best interests of all Teck shareholders.
The Proposed Teck Separation will introduce significant complexity and impede future transactions
The Teck Board has, following the public announcement of our proposal and related market reaction, consistently stated that there will be more potential counterparties interested in a potential combination with Teck after the Proposed Teck Separation. However, any potential counterparties interested in Teck’s metals business could have approached Teck prior to the Proposed Teck Separation and simply implemented a clean demerger of Teck’s coal business simultaneously with an acquisition of Teck. This would allow potential counterparties interested in Teck’s metals business to acquire this business unencumbered by coal cashflows from the Transition Capital Structure (“TCS”).
In contrast, any potential transaction with Teck Metals after the Proposed Teck Separation would require a party interested in Teck’s metals business to also acquire the coal cashflow stream from the TCS.
We believe there are a limited number of parties that are willing or able to acquire both material metals and coal cashflows – Glencore's proposal is unique in this regard in that it provides a value accretive proposition for both metals and coal – and any potential subsequent sale of the TCS by an acquiror of Teck Metals is likely to be at a discounted value given Teck Metals’ lack of control over these cashflows (i.e. the value of the TCS plus the value of EVR is likely to be less than the value of Teck’s coal business today).
To maximise value post the Proposed Teck Separation, the TCS, which creates a complex financial integration between Teck Metals and EVR, would therefore likely need to be unwound, necessitating a two-step transaction. A two-step transaction would require the involvement of two sets of Boards and shareholders, and introduce significant potential delay following completion of the Proposed Teck Separation.
There would also be meaningful breakage costs associated with these two transactions, including change of control costs, recapitalisation expenses, duplicative set of separation and integration costs, and redundant financing, advisory, and services-related costs.
This would be in addition to the risk of upfront value destruction on implementation of the Proposed Teck Separation, whereby current Teck shares may de-rate significantly.
It is for this reason that Glencore has stated that it cannot pursue its proposal if the Proposed Teck Separation proceeds. The significant value destruction that would arise from the Proposed Teck Separation, most notably via the implementation of the TCS, would mean that Glencore’s proposal could not be implemented in its current form, and the full value proposition could not be realised by Teck shareholders.
Dr Keevil has confirmed that he will respect the will of the Class B Shareholders
In an interview with the Globe and Mail on Friday 14 April 2023, Dr. Keevil confirmed that: “If everybody wants to go the other direction, I can’t go swimming against the tide. The A shares are like the governor in an engine. So if the engine starts to move too fast, they can slow things down a little bit, so people can think about it, and act responsibly. But the A shares can’t go against what the majority of what the B shares want to do. That just isn’t there.”
It is therefore clear that you, the Class B Shareholders, have significant influence and the ability to ensure that appropriate actions are taken to maximise value for all shareholders.
Major proxy advisors recommend shareholders to vote against the Proposed Teck Separation and Glass Lewis encourages direct engagement with Glencore
The two major proxy advisors – ISS and Glass Lewis – have both released recommendations advising Teck shareholders to vote AGAINST the Proposed Teck Separation on 26 April 2023 – with both advisors noting the Proposed Teck Separation’s material and complicated structural issues that arise from the ongoing financial integration between EVR and Teck Metals for the foreseeable future.
ISS in their recommendation wrote that “the separation introduces some structural issues and uncertainties, while the fact pattern available also demonstrates options could exist with potential to deliver superior value”.
Glass Lewis separately noted that the “recent modification to add a cash component…could substantially resolve at least some of the concerns regarding a Glencore deal exposing Teck shareholders to unwanted ESG-related risks” while also noting that the “preliminary terms of the Glencore Offer appear to imply a relatively attractive market premium and valuation for the Company’s Class A and Class B”. Furthermore, Glass Lewis believes “shareholders would be better served rejecting the Separation at this time with a view towards encouraging the Company to engage in further dialogue with Glencore”.
We urge Teck Shareholders to take action to support engagement on our Proposal
Glencore is prepared to meet anytime and anywhere that is suitable for the Teck Board and/or its management team to explore our proposal. If the Proposed Teck Separation proceeds, the Glencore proposal cannot proceed and potential future offers for Teck Metals would likely look very different given the friction costs, the complexity of the two companies, the time delay involved and the impact of two new management teams and boards.
We urge Teck shareholders to take action to ensure that the Teck Board engage in bona fide negotiations regarding Glencore’s proposal to see if this is a path for Teck shareholders to maximise value from their Teck shares.
Chief Executive Officer
For further information please contact:
t: +41 41 709 28 80
m: +41 79 737 56 42
t: +41 41 709 24 62
m: +41 79 904 33 20
Glencore LEI: 2138002658CPO9NBH955
Notes for Editors
Glencore is one of the world’s largest global diversified natural resource companies and a major producer and marketer of more than 60 commodities that advance everyday life. Through a network of assets, customers and suppliers that spans the globe, we produce, process, recycle, source, market and distribute the commodities that support decarbonisation while meeting the energy needs of today.
With around 140,000 employees and contractors and a strong footprint in over 35 countries in both established and emerging regions for natural resources, our marketing and industrial activities are supported by a global network of more than 40 offices.
Glencore's customers are industrial consumers, such as those in the automotive, steel, power generation, battery manufacturing and oil sectors. We also provide financing, logistics and other services to producers and consumers of commodities.
Glencore is proud to be a member of the Voluntary Principles on Security and Human Rights and the International Council on Mining and Metals. We are an active participant in the Extractive Industries Transparency Initiative.
We recognise our responsibility to contribute to the global effort to achieve the goals of the Paris Agreement by decarbonising our own operational footprint. We believe that we should take a holistic approach and have considered our commitment through the lens of our global industrial emissions. Against a 2019 baseline, we are committed to reducing our Scope 1, 2 and 3 industrial emissions by 15% by the end of 2026, 50% by the end of 2035 and we have an ambition to achieve net zero industrial emissions by the end of 2050. For more detail see our 2022 Climate Report on the publication page of our website at glencore.com/publications.
The companies in which Glencore plc directly and indirectly has an interest are separate and distinct legal entities. In this document, “Glencore”, “Glencore group” and “Group” are used for convenience only where references are made to Glencore plc and its subsidiaries in general. These collective expressions are used for ease of reference only and do not imply any other relationship between the companies. Likewise, the words “we”, “us” and “our” are also used to refer collectively to members of the Group or to those who work for them. These expressions are also used where no useful purpose is served by identifying the particular company or companies.