Glencore replies to Teck, proposes modifications of coal business
Glencore plc (“Glencore”) announces that it has submitted a reply to the letter from the Board of Directors of Teck Resources Limited (“Teck”) dated 3 April, in which it responds to certain of Teck’s stated concerns regarding the Proposed Merger Demerger and proposes certain modifications to the terms of the Proposed Merger Demerger.
Glencore continues to believe that CoalCo’s combined thermal and coking coal assets would position it as a leading, highly cash-generative bulk commodity company which would attract strong investor demand given its yield potential. However, Glencore acknowledges that certain Teck investors may prefer a full coal exit and others may not desire thermal coal exposure.
Accordingly, Glencore has proposed to the Teck Board to introduce a cash element to the Proposed Merger Demerger to effectively buy Teck shareholders out of their coal exposure such that Teck shareholders would receive 24% of MetalsCo and US$8.2 billion in cash. This valuation is in line with both (i) the implied enterprise value of Elk Valley Resources (“EVR”) and the Transitional Capital Structure owned by Teck shareholders based on the Nippon Steel investment under the proposed standalone separation into Teck Metals and EVR (the “Proposed Teck Separation”), and (ii) the upper end of the valuation ranges of EVR provided by Origin Merchant Partners, in its fairness opinion to the Special Committee of the Teck Board.
As Glencore remains enthusiastic about the merits and prospects of CoalCo and expects a significant proportion of Teck shareholders to share our view, Glencore is also prepared to offer a combination of cash and/or CoalCo shares (up to 24%, if all Teck shareholders were to elect shares rather than cash) on the basis of the above.
If a transaction were to materialise, Glencore would manage its balance sheet through to closing, consistent with its current Shareholder returns framework, such that MetalsCo would continually consider the above cash element (from zero up to US$8.2 billion) as part of its previously highlighted c.US$8 billion pro-forma net debt cap, down from Glencore’s currently applied optimum net debt maximum level of c.US$10 billion.
Glencore continues to believe that the respective Glencore and Teck businesses are uniquely complementary and that the creation of MetalsCo and CoalCo through the Proposed Merger Demerger is a compelling opportunity to create material value for the companies’ shareholders, through delivering a truly standalone MetalsCo and CoalCo, and that opportunity will be lost if Teck instead proceeds with the Proposed Teck Separation.
