Could Teck acquisition boost the Glencore share price?

After its first hostile takeover bid was rejected out of hand, Glencore has offered a cash sweetener to shareholders of Teck Resources, which it hopes will persuade Class B shareholders to vote against the spin-off plan that Teck’s board have proposed. The move was prompted by rising copper demand, with the metal expected to be in short supply for the remainder of the decade.

- Glencore offers sweetener after Teck rejects initial takeover bid.

- Copper demand is prompting increased M&A in mining sector.

- Global X Copper Miners ETF offers Glencore, Teck, BHP and OZ Minerals exposure.

Glencore’s [GLEN.L] share price is up 6.3% this week so far, after its $22.5bn unsolicited takeover bid for Teck Resources [TECK] was branded a “non-starter” by the latter’s CEO on Monday. Glencore quickly responded by adding an $8.2bn cash sweetener to its bid, which could provide an incentive for Teck’s Class B shareholders to scupper controlling investor Norman Keevil’s plans to split the company in two.

The bid, submitted privately on 26 March, was publicly rejected by Teck on 3 April. Teck’s share price closed the day 19.6% up in response, while Glencore’s slipped 2.6%. However, Glencore’s shares recovered these losses over the Easter Bank Holiday weekend that closed UK markets for four days, before rising significantly on 11 March to close 3.3% up on their 6 April close.

Overall, Glencore stock is up 4.8% in the past month, but down 12.5% year-to-date. Teck is up 18% over the past month and 15.2% year-to-date.

Rival spin-off plans

Teck hopes to split its copper and zinc mining business into two units: Teck Metals, which will focus on base metals production, especially copper, and Elk Valley Resources, which will be “a high-margin Canadian steelmaking coal producer” under the plan.

The split requires two-thirds approval from both sets of Teck’s shareholders, at a bid scheduled for 26 April. While Teck’s Class B shareholders can’t force Keevil to accept the takeover bid, it is hoped that, by making its bid enticing enough, Glencore can prompt a protest vote against Teck’s proposals to split the company, and provoke a stand-off with the board.

Glencore is also proposing to split the combined entity into two, creating a base metals enterprise, “GlenTeck”, and a thermal and steelmaking coal spin-off.

Glencore’s sweetener on 11 April offered Teck’s shareholders the option to take cash in lieu of shares in the coal spin-off. In a statement, Glencore acknowledged that “certain Teck investors may prefer a full coal exit and others may not desire thermal coal exposure”.

However, Teck appeared unimpressed by the revised offer.

“Glencore’s revised proposal appears to be largely unchanged,” said a Teck statement on 11 April. “The revised proposal does not provide an increase in the overall value to be received by Teck shareholders or appear to address material risks previously raised by Teck.”

More mining M&A?

Glencore’s pursuit of Teck stems from its interest in copper, an increasingly sought-after resource. Demand for the metal, a key component of electrical wiring, is due to outstrip supply through 2023, and the deficit could last until 2030.

Copper demand is driving an increase in M&A activity across the mining sector.

On 11 April, BHP’s [BHP.AX] $6.4bn bid for copper and gold miner OZ Minerals [OZL.AX] was approved by Vietnam's Competition and Consumer Authority. Elsewhere, Rio Tinto’s [RIO.L] $3.3bn acquisition of Turquoise Hill, completed at the end of last year, increases Rio’s ownership of the Oyu Tolgoi copper mine in Mongolia.

Gold mining is also seeing attempts at consolidation. On 11 April, American miner Newmont [NEM] made a best and final offer of A$29.4bn ($19.5bn) for the Australian company Newcrest Mining [NCM.AX], which would extend Newmont’s lead in global gold production to double its nearest rival, Barrick Gold Corp [ABX.TO].

Funds in focus: Global X Copper Miners ETF

Investors seeking exposure to producers of copper can select the Global X Copper Miners ETF [COPX], which tracks the Solactive Global Copper Miners Total Return Index.

As of 12 April, Glencore has a 3.76% weighting in the fund, while Teck [TECK-B.TO] has a 4.56% weighting. BHP has a 4.44% weighting, while OZ Minerals has a 4.05% weighting.

COPX is up 9.6% in the past month and up 13.9% year-to-date.

Analysts at Scotia Capital are downbeat about Glencore’s chances of completing the Teck deal. “The Glencore offer has a very low probability of success even at a sweetened price,” the firm said. A Stifel analyst wrote that, in the firm’s view, “the greatest long-term value for [Teck] shareholders [is] Teck's proposed plan.”

However, analysts on the whole are bullish on Glencore, with the median price target among analysts polled by Refinitiv of 588.00p representing 21.6% potential upside from the 12 April close.