Teck and Anglo Push Back on Investor Unease Over Ownership Framework
Teck Resources Ltd. TECK-B-T and London-based Anglo American PLC NGLOY are dismissing investor concerns over a wrinkle in the British miner’s shareholder structure that has crept into the approval process for the two companies’ proposed merger.
Vancouver-based Teck needs both shareholder and federal government approval for its planned $20-billion marriage with Anglo. Analysts say Teck faces significant challenges in its campaign to win shareholder support for the union.
Investors and politicians are both looking for assurances the Canadian miner won the best possible terms for the merger of equals, which will see Anglo shareholders own 62.4 per cent of the combined entity and Teck shareholders hold 37.6 per cent.
The ownership ratio, however, excludes 99 million Anglo shares, or 8.4 per cent of the company, held by three charitable trusts. The trusts are run by independent boards that Anglo created in 2006 as part of a share buyback by the company.
The trusts waived their right to vote on the merger, which requires approval from two-thirds of Teck’s Class B shareholders and 50 per cent of Anglo’s owners.
Teck investors and industry executives said the trusts’ governance structure is opaque and could give Anglo more control of the combined company than the ownership ratios imply. If the 99 million were factored into the ownership, Teck shareholders would own 35.6 per cent of the combined entity, rather than 37.6 per cent.
Teck and Anglo executives said the shares held in the trusts have no impact on the terms of the transaction, and no bearing on the ownership ratios, as the shares are in investment holding companies that will continue to exist within the combined entity. In an e-mail, Anglo senior vice-president James Wyatt-Tilby said: “These shares are a red herring as they behave like treasury shares – the trusts have no vote now or in the future and the shares therefore have no effect on the transaction.”
The 99 million Anglo shares are held in trusts called Epoch Investment Holdings, Epoch Two Investment Holdings and Tarl Investment Holdings.
“The Epoch and Tarl investment companies behave like treasury shares – they have waived their votes and their share of the dividend stays within Anglo,” said Andy Lloyd, a spokesman for Anglo. “These shares have no bearing on the Anglo-Teck ratio.”
As part of their campaign to win government approval for the transaction, Teck and Anglo pledged to locate the miner’s head office and executive team in Vancouver and invest at least $4.5-billion in Canadian operations over the next five years.
Prior to announcing the Anglo merger, Teck disclosed engineering issues at its flagship Quebrada Blanca (QB2) copper mine in Chile and cut production forecasts, which knocked back its stock price. Last week, Teck scaled back projections on QB2’s copper output for the second time.
Anglo and Teck put forward a merger with no takeover premium for shareholders of either miner, a structure analysts say has institutional investors in Teck questioning the value of the deal.
“With a no premium bid, this investor discontent primarily stems from the unfavourable timing of this transaction and the resulting materially lower share of economics of the merged company,” Bank of Nova Scotia analyst Orest Wowkodaw said in a recent report.
“Based on our discussions with investors, we continue to believe that securing the minimum required Teck class B shareholder approval of 66 2/3 per cent is likely to prove challenging under the current terms,” Mr. Wowkodaw said.
This article was first reported by The Globe and Mail
