Glencore (LON: GLEN) stock price has wavered in the past few days as investors focus on the ongoing Teck Resources acquisition drama. The stock jumped to a high of 484.65p on Tuesday, the highest point since March 9 after Teck rejected the company’s offer. It has jumped by ~14.9% from the lowest point in March.
Tech Resources rejects Glencore’s offer
The top mining news of the year is the proposed Glencore merger with Teck Resources, a Canadian mining giant. Glencore proposed a complex deal that values Teck at more than $23 billion. In a statement on Monday, Teck said that the hostile takeover was a non-starter and that it was focused on turning around the company.
Glencore’s goal is to create two large companies in diverse areas of the commodity market. CoalCo, which will be listed in the United States, will be made up of the two companies’ coal assets. The firm will be able to produce over 96 million tons of coal per year. I view this business as the DirtCo.
The other business will be MetalsCo, which will be a publicly-traded form focused on industrial metals like copper, nickel, zinc, and lithium. I see this as the CleanCo, because of its focus on metals crucial in the energy transition.
In its offer, Glencore said that the two companies will be better together partly because of the huge synergies. It estimates that the total synergies will be between $4 billion and $5 billion. Most importantly, MetalsCo will have assets in key countries like Chile, DRC, and Canada.
Is this acquisition a good one?
So, is this deal a good one for Glencore? I often hate big mergers because of the challenges involved in executing them. In fact, studies show that most large mergers don’t achieve their overall goals. Remember AT&T’s buyout of Time Warner? Or Bayer’s acquisition of Monsanto? Or the recent JP Morgan acquisition of Frank?
In this case, Glencore has clearly said that it will not conduct due diligence for the transaction. For a $23 billion deal, I believe that a good due diligence is always important.
While I don’t like M&As, I love spin-offs since they unlock value to shareholders. In Glencore’s case, moving to CleanCo and MetalsCo will attract different types of investors. ESG investors will move to CleanCo while the others will move to CoalCo.In all, I believe that Glencore should consider focusing on its current business and avoid the deal.
For one, as the FT wrote, the company will need to sweeten the offer in order to win the Keevil family. Instead, Glencore should focus on streamlining its business and then using the resources to buy back stock and give dividends.
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