Anglo American, of the FTSE 100 index, and the Canadian group Teck Resources, would like you to think of their proposed $53bn (£39bn) combo as “a true merger of equals”, which it obviously isn’t because the UK-listed company is about twice the size. Anglo’s shareholders, even after they’ve been paid $4.5bn via a special dividend to even up the ratios a bit, will still emerge with 62.4% of the new company.
But it is a merger in the sense that Anglo isn’t paying a meaningful takeover premium to get the deal done – just a token one of 2%. That looks a smart piece of deal-making on the part of Anglo’s chief executive, Duncan Wanblat.
He had to agree to move the headquarters from London to Vancouver and to embrace an even split of boardroom jobs (though Wanblat himself stays in post). But, if that was the way to get a thumbs up from protectionist Canadian politicians, it’s what you do. The primary stock market listing, which Anglo’s shareholders may care more about, is staying in London (at least for now).
The appeal of Teck is its exposure to copper, the in-demand metal for electrification of the world’s energy systems. When added to Anglo’s own copper interests, the combo will be able to boast that 70% of its earnings come from the metal, a useful point of differentiation for investors and a stark contrast with the sprawling creature that was Anglo American of old.
There is promise of easy cost-savings of $800m, plus an additional $1.4bn eventually from running adjacent copper mines in Chile more efficiently. So, yes, the outline arithmetic of the deal stacks up. And since Anglo doesn’t have the balance sheet to make aggressive moves on rivals even if it wanted to, a deal without a real premium was the only way to make a splashy move.
Will it actually happen, though? The structure also looks like an open invitation to bigger rivals to bid for either Anglo and Teck, both of whom have seen off wannabe buyers in recent years.
In Anglo’s case, it survived a close encounter with BHP last year because, first, the Australian Goliath wasn’t offering enough and, second, because the messy terms required the target to sell various South African assets first. But Dunblat has subsequently done some tidying up of Anglo, including spinning off the platinum interests, so, in theory, there’s a cleaner prospect for BHP if it has the appetite.
BHP has “moved on”, said its chair, Andrew MacKenzie, last October, but seeing Anglo skip off to Canada is the sort of development that might prompt a rethink. Presumably Anglo’s copper and iron ore assets look just as attractive to BHP as they did a year ago.
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Anybody else is also free to enter fray, of course. And the same is true of Teck Resources, whose defeated bidder in 2023 was Glencore, which still ended up buying the steel-making coal business. That is how life tends to go in the mining sector: once a deal is announced, the door is open for others to try to rush in. Anglo Teck looks logical in its own terms – but it is far from being a done deal.
