Teck Resources’ Highland Valley Copper Mine in September. Anglo American’s proposed takeover of Teck has won the backing of a proxy advisory firm.DARRYL DYCK/The Canadian Press
Anglo American’s NGLOY $20-billion deal to acquire Canada’s Teck Resources Ltd. TECK-B-T has won the blessing of a major proxy advisory firm.
Glass, Lewis & Co., which advises institutional investors on how to cast their votes, endorsed the proposed transaction in a report Friday, citing a better long-term growth profile for the combined company – to be called Anglo Teck – than Teck could achieve on its own. The report said the all-stock deal would allow existing Teck shareholders to participate in future upside.
The report added that London-based Anglo’s willingness to relocate its headquarters to Vancouver once the deal closes would help reduce the risk of it being blocked.
“Although the merger entails regulatory, political and execution risks, these risks are customary for a cross-border transaction of this scale and are addressed, in part, through the commitments and undertakings negotiated by the parties,” the report said.
Glass Lewis and its chief rival, Institutional Shareholder Services Inc., hold tremendous sway over whether shareholders ultimately approve or reject acquisitions. ISS spokesperson Izabella Nagy declined to say when its own recommendation on the Anglo-Teck deal would be released.
Shareholders, however, are not the only ones who must support the transaction in order for it to proceed. Industry Minister Mélanie Joly must also determine that the deal represents a net economic benefit to Canada and does not threaten national security.
In addition to moving its headquarters and changing its name, Anglo has also offered to maintain a secondary stock listing in Canada while keeping its primary listing on the London Stock Exchange. It also structured its proposal in a way that would allow Canadian investors in Teck to defer capital gains taxes on the transaction for as many as 15 years.
In mid-September, one week after the deal was first announced, Ms. Joly said those promises do not go far enough and publicly called on the British miner to do more if it hopes to receive her support.
Industry Minister Melanie Joly in the House of Commons in Ottawa on Nov. 7.Sean Kilpatrick/The Canadian Press
Earlier this week, The Globe and Mail reported that Ottawa was pushing Anglo to legally redomicile in Canada and move its primary stock listing from London to the Toronto Stock Exchange. In an interview with The Globe in September, Anglo chief executive officer Duncan Wanblad dismissed the possibility of redomiciling to Canada.
“London is very good for what it is that we’re trying to do here,” he said.
Making Anglo Teck a fully Canadian enterprise would allow the company to remain in the country’s flagship stock indexes. If the existing proposal is approved, Anglo Teck will join the U.K.’s Financial Times Stock Exchange 100 Index and will be removed from Canada’s benchmark S&P/TSX Composite Index and the blue chip S&P/TSX 60.
Teck is currently among only a handful of mining companies on the S&P/TSX 60, with most index members representing the financial, utilities or oil and gas industries.
Index funds own roughly 9 per cent of Teck shares, Scotia Capital analyst Jean-Michel Gauthier said in a report shortly after the deal was first announced. Those investors are expected to sell 44 million Teck shares, worth roughly $2.4-billion, if Teck merges with Anglo, Mr. Gauthier said.
At an event in October, S&P Dow Jones Indices, which runs Canada’s two main benchmarks, faced heavy pressure from fund managers to allow Anglo Teck to remain part of the domestic indexes if the merger moves ahead.
Even if Anglo does agree to redomicile in Canada, the Glass Lewis report said such a move “is likely to be viewed unfavorably by U.K. counterparties.”
“These external political dynamics, coupled with the extensive approval requirements and the lengthy closing timeline, represent material execution risks that shareholders should consider as part of their assessment of the transaction,” Glass Lewis said.