Can Glencore tempt Teck Resources by sweetening $23bn bid?

This investor favourite is working hard to win the heart of its Canadian target and create ‘two true industry leaders’. Our City writer has the latest in this long-running saga.

Glencore (LSE:GLEN) turned up the heat today in a takeover battle that has captivated the mining industry and fuelled hopes of a re-rating for the FTSE 100 heavyweight stock.

The mining giant has so far been frustrated in its attempts to persuade Canada’s Teck Resources (NYSE:TECK) to agree to a merger/demerger plan, which would see the pair simultaneously split their combined coal and metals operations into two standalone companies.

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The New York-listed firm is instead holding a shareholder vote on 26 April to approve its existing plan to separate its base metals and coking coal assets into two entities.

Teck and its chairman Norman Keevil, whose family hold a large number of voting rights, have argued against the Glencore proposal on grounds including value, complexity and concern over thermal coal exposure.

Last week, Glencore submitted a revised proposal to Teck that introduced a cash element for investors that want to fully exit coal but still retain exposure to the metals business.

It went further today by writing to holders of Teck’s B class shares highlighting the “superior features” of its proposal and telling them it is willing to make an offer directly if the proposed Teck separation does not proceed next week.

Glencore also indicated it is willing to consider making improvements to its proposal. It said in the letter: “Glencore has never stated that its proposal is “best and final” and that it is not willing to make changes and improvements to its proposal.

“Glencore believes that any such improvements are best considered following engagement by the Teck board which would allow the parties to jointly explore ways that Glencore could alter its proposal to address any issues raised by Teck management or Teck’s board.”

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Teck is the world's second-largest seaborne exporter of steelmaking coal, with four operations in Western Canada and significant high-quality steelmaking coal reserves.

In a presentation document also published today, Glencore said it held discussions with Teck about a potential combination in 2020 before various attempts were made from October onwards in an effort to re-engage with the company.

Its original proposal offered a 20% premium to the undisturbed Teck share price, implying a market cap of $23 billion, with Glencore shareholders holding 76% of the merged entities.

The proposed coal operation would be listed on the New York Stock Exchange, have zero net debt and return all cash flow to shareholders. The remaining MetalCo would include base metals, energy marketing, recycling and the grain handling business Viterra.

Deutsche Bank said this week that a merger would create “two true industry leaders” with unrivalled scale, diversification and growth options.

Its analyst Liam Fitzpatrick added: “This should lead to higher returns through the cycle and improved multiples versus both companies' current standalone valuations and compared to Teck's own separation plan.

He said that proposed capital structures under Teck’s plan were far from optimal, adding that the dual class share structure will also persist for a number of years.