By Javier Blas
Teck Resources Ltd.’s rejection of Glencore Plc’s $23 billion takeover bid was hardly the end of their dealmaking story. It was closer to the end of the beginning. In the next chapter’s plot twist, the buyer could very well become a seller in a transaction that reshapes the global mining industry.
By proposing to Teck that they spin off their coal assets and sell noncore businesses, Glencore’s decisionmakers knew they were doing more than configuring a new commodities giant. Unwittingly or not, they were also putting the “for sale” sign above their own company — a placard visible to the only company that has the potential interest and means to acquire them: BHP Group Ltd.
___STEADY_PAYWALL___Read more: Glencore ordered to pay $700 Million in US over bribery case
For now, Glencore, the world’s largest commodity trader and a huge miner of coal, copper and other base metals key for the energy transition, is still pursuing Teck. But the clock is ticking. Glencore has less than three weeks to convince a third of Teck’s shareholders to vote down a plan to split the Canadian miner before a special shareholder meeting on April 26. Due to the dual class of shares at Teck, if the split goes ahead, Glencore’s takeover bid would be effectively dead.
What would it take for Teck’s shareholders to revolt against the board’s recommendation to reject Glencore? More money — a lot more. Glencore is offering an all-share deal with a 22% premium. Gary Nagle, Glencore’s chief executive officer, needs to up the number quite a bit to convince its target. While Nagle repeatedly defended his offer this week in calls with analysts and reporters, he never called it “best and final.” Looking at what others have paid for copper assets, Nagle needs to move its premium to the neighborhood of 30%.
Everyone else in the industry is watching the drama from the sidelines, but not everyone is a mere spectator. I suspect the attention is most intense at BHP, the world’s biggest miner. The reason is simple: If a Glencore-Teck tieup is the most logical deal today in global mining, a BHP-Glencore merger is perhaps the second – and most transformative – one.
Mike Henry, the chief executive of BHP, has not only talked up dealmaking (“yes, M&A is part of the equation but we’re going to be extremely disciplined,” he said last year), but sealed his company’s biggest acquisition in more than a decade. Last November, BHP bought Australian copper miner OZ Minerals Ltd for more than $6 billion – paying a premium of 49% above the OZ Minerals share price before the takeover talks started.
Read more: Glencore under new climate pressure over its coal cash cow
Flush with cash thanks to years of sky-high iron ore and coal prices, this may be the moment for Henry to transform BHP.
The company’s net debt has fallen to just $300 million, below its self-imposed range of $5 billion to $15 billion. In its last fiscal year, BHP rang up record underlying earnings of $40.6 billion. The bulk came from iron ore ($21.7 billion) and coal ($9.5 billion), with copper third ($8.6 billion). By merging with Glencore, BHP would become the world’s largest copper producer, plus gain base metals — notably cobalt and nickel — which are key for electric vehicles and batteries.
Henry isn’t a conventional CEO in mining. In his LinkedIn profile, he lists 11 “skills” — including “capital projects” and “leadership” — all the usual stuff for a mining boss. But also, he lists “marketing” – which is how BHP and Glencore refer to their trading business. Henry cut his teeth at BHP as a commodity trader, first in The Hague and later in Singapore, before getting his hands into mining operations. Considering his trading background, he looks more a Glencore man than a BHP man.
In fact, trading could be what links both companies. Before stepping down as Glencore CEO in 2021, Ivan Glasenberg (still its biggest shareholder) and Henry held informal conversations about a potential combination.
Why this time could be different? For one, Glencore has been reluctant about parting ways with its hugely profitable — but hugely polluting — coal business. But having offered to merge it with that of Teck, and then spin it off, he has provided a roadmap to BHP. Glencore has also announced it plans to divest its agricultural-trading business, and Glencore’s Nagle didn’t say “no” when I asked him earlier this week if he was open to selling the company’s very profitable oil, gas and electricity-trading business — which could well suit a Middle Eastern national oil company.
Once you spin off coal, and divest agriculture and energy trading, all that’s left is mining and, crucially, metals trading – the perfect fit for BHP.
Read more: Glencore: dirty business provides an embarrassment of riches
Glencore has also settled the bulk of the investigations related to past corruption and money laundering. But it still operates in some hairy jurisdictions, notably the Democratic Republic of Congo, which BHP – particularly, its board of directors – would see with concern.
Glencore executives often sound frustrated with their rivals’ reluctance to engage in dealmaking. Of course, their real frustration is that none wants to sell at the price they want to pay. If the Teck-Glencore deal fails, we may test whether Glencore bosses – and shareholders – are ready to play the role of prey, rather than predator.
© 2023 Bloomberg L.P.
