Teck Resources’ Highland Valley Copper Mine near Logan Lake, B.C., on Thursday. Teck’s merger with Anglo is expected to take 12 to 18 months to complete.DARRYL DYCK/The Canadian Press
Teck Resources Ltd. TECK-B-T is facing significant resistance from institutional investors as it pitches a merger with London-based Anglo American PLC NGLOY, in part because the deal will see one of Canada’s largest miners dropped from the country’s flagship stock index.
Teck needs shareholder and government approval for its proposed $20-billion union with London-based Anglo, which would see the combined company headquartered in Vancouver. The new entity, called Anglo Teck, plans to incorporate in London and have its primary share listing on the London Stock Exchange (LSE).
Teck’s biggest shareholders are unhappy with marriage of two miners that lacks the premium on the stock price that is typically associated with takeovers, along with the shift to an LSE listing, according to analysts.
“Based on our ongoing discussions with investors, we believe that the proposed transaction under the current terms appears unlikely to succeed,” analyst Orest Wowkodaw at Bank of Nova Scotia said in a report on Monday.
There is “investor discontent” with lack of a takeover premium for Teck shares, Mr. Wowkodaw said. He said getting the required 66.6-per-cent approval from owners of Teck’s widely held class B shares “is likely to prove challenging.”
“The loss of a Canadian mining icon, the re-domiciling of the company to the U.K., and the associated loss of primary listing (and index inclusion), which will make the new Anglo Teck simply uninvestable for many Canadian investors with few large cap copper alternatives, are also meaningful points of contention,” Mr. Wowkodaw said.
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The miners may improve the terms of the deal to win over Teck investors, analysts say. They also note that the odds of the deal being approved will rise as long-time Teck shareholders sell their stock to short-term investors such as hedge funds. Teck shares have risen by 13 per cent since the deal was announced last week.
“Some Class B shareholders are unhappy that this merger does not include a premium, but we believe these shareholders are more likely to sell their shares before the vote, (which is expected to happen in early December) rather than vote against this transaction and hope that a better deal comes along,” especially if Anglo bumps its offer price, analysts Christopher LaFemina and Patricia Hove at Jefferies Group said in a report on Tuesday.
A Teck merger with Anglo is expected to take 12 to 18 months to complete.
Teck is Canada’s largest publicly traded base-metal miner and would become one of the world’s top five copper producers after a merger with Anglo. For investors, its shares represent exposure to the resource sector in Canada’s benchmark S&P/TSX Composite Index and the blue chip S&P/TSX 60, which are dominated by banking and telecom stocks.
If the merger is approved, Anglo Teck will be part of U.K.’s Financial Times Stock Exchange 100 Index. The company plans to have secondary listings on the Johannesburg, New York and Toronto stock exchanges. Anglo Teck would list exchangeable shares on the Toronto Stock Exchange (TSX), with the same rights as the ordinary shares that trade on the LSE.
Index operators such as S&P Dow Jones Indices, which runs the Canadian stock market benchmarks, typically only include a company in an index that represents the country where they are incorporated.
In what’s shaping up to be the world’s biggest mining deal of the past decade, Vancouver-based Teck Resources Ltd. and London-headquartered Anglo American PLC have agreed to join together, creating a copper-focused giant worth about $70-billion.
The Canadian Press
“Despite the headquarters remaining in Canada, the new entity’s U.K. incorporation implies a U.K. domicile from all index providers,” analyst Jean-Michel Gauthier at Scotiabank said in a report. “Anglo Teck will thus get kicked out of all TSX, FTSE, MSCI, and Solactive North American indices.”
In May, S&P Dow Jones Indices, which runs the S&P/TSX benchmarks, loosened the rules on index inclusion to allow companies “with significant ties to Canada” to stay in a Canadian index even if it normally would consider the company domiciled in another country.
On Wednesday, an S&P Dow Jones Indices spokesperson declined to comment on the impact of a Teck merger with Anglo as the transaction has not been finalized.
However, Mr. Gauthier said the decision to incorporate and list Anglo Teck shares in London will dictate S&P’s decision. “There are no other supporting operational factors for a Canadian domicile assignment that could override the incorporation status,” he said.
Over time, companies tend to run their financing and investor relations activities around the exchange that has their primary listing and highest trading volumes.
Last week, Newmont Corp., the world’s largest gold miner, announced plans to delist its shares from the TSX at the end of the month, owing to low trading volumes. The Denver-based company’s primary listing is on the NYSE.
Newmont began trading on the TSX in 2019 after acquiring Vancouver-based Goldcorp Inc.
Index investors are expected to sell 44 million Teck shares, worth roughly $2.4-billion, if the company merges with Anglo, Mr. Gauthier said. That is equivalent to 6½ days of TSX trading in the stock at average volumes.
Fund managers will buy 68 million Anglo shares, the equivalent of 16 days of average trading volumes, if the deal goes through.
Industrial equipment company RB Global Inc. – formerly known as Ritchie Bros. Auctioneers – is the leading candidate to replace Teck in the S&P/TSX 60 index, Mr. Gauthier predicted. While RB Global is incorporated in Vancouver, its head office is in the Chicago suburbs.