Talks about the $52bn merger of Anglo American with Teck Corp got serious just two months ago. The two companies had been discussing how neighbouring mines in Chile — Collahuasi, in which Anglo has a 44% stake, and Quebrada Blanca (QB) — might realise savings.
The industrial logic of putting two mines together quickly advanced to the strategic benefits of a merger. Anglo CEO Duncan Wanblad refers to cultural simpatico between the companies as well as technical synergies. For instance, in the past two years Anglo and Teck have both fended off unsolicited takeover attempts (Glencore for Teck and BHP for Anglo), and both companies are restructuring, which could leave them vulnerable to renewed takeover bids.
Large-cap mining companies across the spectrum are seeking scale and quality. While projects are one option, they are long term at a time when metal deficits are imminent. Copper will be in hot demand, and big investors are likely to pay most attention to players of significant scale.
The merger proposal, expected to be completed in 12 to 18 months, has drawn plaudits. Market watchers have noted that Anglo and Teck are complementary from a commodity perspective and that the merger should bolster the quality and resilience of earnings, as well as potentially reduce the business risk.
At the asset level, the key feature of the proposed merger is putting QB and Quellaveco together. This could create a copper complex to rival even Escondida, the world’s largest copper mine
The mechanics of the deal are simple. Anglo will offer 1.33 shares for each Teck share, effectively a nil-premium deal given the relative share prices at the time. Anglo Teck, as the new company is to be named, will — importantly — be headquartered in Vancouver, with Wanblad occupying the CEO’s seat. Teck CEO Jonathan Price will be his deputy.
Teck’s previous suitor, Glencore, failed to convince the Canadian firm’s largest shareholder, the Keevil family. In this regard, Glencore failed to recognise how interwoven Teck was in Canadian business culture, much as BHP had failed to do with Anglo in South Africa. In this way, Anglo may also have reduced the risk of regulatory failure. Canada’s authorities, which Teck is thought to have already courted on the deal, generally don’t favour offshore takeovers.
So much for strategic sense. At the asset level, the key feature of the proposed merger is putting QB and Collahuasi together. This could create a copper complex to rival even Escondida, the world’s largest copper mine owned jointly by BHP (57.5%) and Rio Tinto (30%).
Mining analysts also reckon the risk of an interloper is fairly low, pointing out that this is an agreed deal that carries a compelling rationale and significant potential synergies. While Teck would be hard to buy for regulatory and shareholder support reasons, there are also obstacles in bidding for Anglo — especially as Wanblad has engineered a $3.5bn special dividend pre-merger, effectively passing through some of the proceeds of about $7bn in restructuring that's still to be completed.
For Wanblad, the proposed merger is another signpost of how far he has taken Anglo since taking the reins. Still, there are some obstacles yet to overcome in Anglo’s restructuring. Botswana wants to buy Anglo’s 85% stake in De Beers (which is a potentially troublesome development), while the group’s $3.8bn sale of metallurgical coal mines in Australia is heading for arbitration after the buyer, Peabody Energy, pulled out of the deal. But the prospect of Anglo Teck helps the market put shape to Wanblad’s strategy once the restructuring is finally complete.
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