What happened
Shares of Teck Resources (TECK 9.02%) surged 27.5% in April, according to data provided by S&P Global Market Intelligence. The catalyst was mining and commodities trading giant Glencore's (GLNCY 0.09%) offer to acquire Teck Resources and de-merge its combined coal businesses. That move upended Teck Resources' plan to separate into two independent companies.
So what
In February, Teck Resources unveiled to shareholders its plan to spin off its steelmaking coal business. That transaction would have created two independent public companies: Teck Metals and Elk Valley Resources. Teck Metals would have focused on energy transition metals like copper and zinc, while Elk Valley would have concentrated on steelmaking coal.
However, Teck Resources abandoned that plan last month following feedback from shareholders. CEO Johnathan Price stated: "Our plan going forward is to pursue a simpler and more direct separation, which is the best path to unlock the full value of Teck for our shareholders."
That decision follows pressure from Glencore, which made an alternative proposal to Teck Resources. It initially wanted to complete an all-stock merger between Glencore and Teck Resources and a simultaneous separation of the combined coal and carbon-intensive businesses. However, Teck rebuffed Glencore's offers, which Glencore modified in April to include a cash payment for Teck's coal business. It believes its updated offer aligns with the desire of Teck Resources' investors for a clean separation of the coal business.
Teck's decision to withdraw its separation plan drew mixed reviews from analysts. National Bank downgraded the stock from outperform to sector perform, citing the uncertainty on its next steps for separating the coal business. However, B. Riley analyst Lucas Pipes was among several who boosted their price targets last month. The analyst wrote that "the path of least resistance is for Teck shares to trade higher" as it explores its alternatives.
Now what
Teck Resources is evaluating its options. It aims to pursue a simpler and more direct separation of its coal business. That could come from selling that asset to another entity or accepting Glencore's merger offer.
Glencore remains committed to its pursuit and could take its offer directly to shareholders if Teck's board isn't willing to work with it. Teck is a good fit for Glencore. Rival miner Barrick Gold's CEO Mark Bristow said his company isn't interested in bidding for Teck. That's partly because it "carries a lot of synergies" for Glencore. Given those synergies, Glencore will likely try to find a mutually agreeable transaction with Teck.
