$70B Anglo-Teck merger faces Ottawa review, shareholders react positively

The companies have proposed the deal as a “merger of equals,” even though Anglo American is worth more than double Teck, as plans include sourcing upper management and board representation roughly equally between the two.

The deal would also see company headquarters of what would be known as Anglo Teck move to Vancouver, as proponents look to sell Canada on the benefits of the deal that will attract regulatory scrutiny.

“We think this is a hugely compelling opportunity for Canada,” said Teck chief executive Jonathan Price in an interview Tuesday. “We will be creating the largest head office in Vancouver, and it really is unprecedented to see a company of the size of Anglo American moving its global headquarters.”

Price is set to become deputy CEO of the combined company, while Anglo American chief executive Duncan Wanblad and chief financial officer John Heasley would move to Vancouver to maintain their roles at Anglo Teck. Teck chair Sheila Murray will be chair of Anglo Teck, while board seats would be equally split between the two companies. 

Merger faces Ottawa review under Investment Canada Act

The deal will be subject to review by the Investment Canada Act, which can be used to block deals deemed not in the national interest. BHP Group’s attempted takeover of PotashCorp (now Nutrien) was halted in 2010 after the government found it wasn’t a net benefit. Canadian Industry Minister Melanie Joly said in a statement that the federal government will address several issues as it considers the merger, including the combined firm’s pledge to have its senior leadership based in and reside in Canada.

The deal also includes about $4.5 billion in spending commitments to Canada over five years. It’s not clear how much of that spending is new, but Price said the combined company would also open the potential for more development in the country going forward. “As a larger company with a bigger balance sheet and much greater financial resilience, we will have the ability to invest in some of the larger projects here in Canada, for example, the likes of Galore Creek, that would be very difficult for a smaller company to handle.”

Anglo Teck would maintain its listings on the London and Johannesburg stock exchanges and also apply for listings on the Toronto and New York stock exchanges. The plan is to keep the company incorporated in London, which would mean the S&P/TSX composite index would lose Teck from its listings, since companies need to be based in the country to be included.

Keeping the company incorporated in London is both for technical reasons, and allows for wider exposure to capital, but shouldn’t take away from the deal meaning a move of the company, said Wanblad in the interview. “Without a doubt, you know, this is absolutely going to be a Canadian company,” he said.

Teck investors left with 37.6% and no takeover premium

There have been long-standing concerns about Canadian mining giants getting snapped up by larger foreign rivals, including then-Xstrata buying Falconbridge in 2006 and the following year Vale buying Inco and Rio Tinto buying Alcan. 

Teck itself was subject to a proposed US$23 billion takeover by Glencore in 2023, only for the company to end up buying Teck’s coal business for US$7.3 billion after a protracted fight. Anglo American is no stranger to being a takeover target itself, as BHP Group made a US$49 billion offer just last year that ultimately fell through.

Anglo’s proposed deal with Teck would see Teck shareholders get 1.3301 Anglo American shares for each class A and class B share they own. Anglo also plans a roughly US$4.5 billion dividend to its shareholders to help balance out its value compared with Teck, but Anglo shareholders will still own about 62.4% of the combined company, while existing Teck shareholders will hold 37.6%, on a fully diluted basis.

The deal comes without a premium for Teck shareholders, and as the company struggles with operational issues at its massive Quebrada Blanca (QB) project in Chile, but Price said it still makes sense for investors. “Teck shareholders will get exposure to what will be one of the largest and highest quality copper-focused companies in the world.”

Combining the two companies could also mean about US$800 million in pre-tax annual synergies, plus a significant boost to the value at QB because it could be run in tandem with the nearby Collahuasi mine that Anglo part-owns.

The issues at QB, which Teck further outlined just last week, has put short-term pressure on the company’s stock price, said National Bank analyst Shane Nagle. “At current prices, shares are pricing in a significant reduction in the near-term operating outlook, which we believe is far too punitive given the quality of Teck’s underlying portfolio.” He said he’s not surprised to see interest in Teck given its challenges, but with the company now in play there’s likely to be several interested parties willing to pay a premium for the company’s portfolio. 

Teck and Anglo shares rally on merger news

So far, shareholders of both companies seem pleased with the deal. Teck’s shares were up more than 14% in midday trading on the Toronto Stock Exchange, while Anglo American’s were up more than 8% on the London exchange. The deal has a US$330 million break fee, while the companies say they expect the merger to be completed in the next 12 to 18 months pending regulatory and shareholder approvals. 

A two-thirds majority vote by Teck’s class A and class B shareholders, voting as separate classes, is required to approve the deal, while a majority vote is needed by the Anglo American shareholders.