In Hollywood, the characters of heroes and villains are usually cleanly definedbut the business world is generally more nuanced. However, the predatory campaign against Teck, the responsible North American mining company producing critical minerals such as copper and zinc that are vital to decarbonization and EV supply chains, by the scandal-ridden, short-sighted Glencore trading shop is the exception to the rule.
Glencores history begins with Marc Rich, who launched a shadowy business culture of tax fraud, sanctions evasion, bribery, and support for the cruelest autocratic regimes in the world, keeping Iran afloat during the 1979 hostage crisis and continuing right through their ongoing dealings with Putins brutal regime.
Teck, by contrast, has been a poster child within the mining industry for responsible growth, transparency, sustainability, and collaborative community relations. Just this week, Tecks patriarch and controlling shareholder, trained technical geoscientist Norman Keevil published the second edition of his book Never Rest on Your Ores: Building a Mining Company, One Stone at a Time. In the book, Keevil discusses the longstanding values, culture, and leadership that grew Tecks value 50-fold over the course of his 70-year control.
Another book, The World for Sale, captures Glencores swashbuckling history of deceit and illegal activity. Interestingly, some of the same voices who wrote this aptly titled history of Glencore are now writing articles trumpeting the potential of Glencores acquisition offer.
If a flurry of breathless headlines, each one more sensational than the last, Swiss trading house Glencore has seen momentum swing in its favor in its unsolicited $23 billion bid to merge with Teck. The fawning coverage trumpets how leading shareholders are supposedly favoring Glencores proposal while check-all-the-boxes proxy advisory firms ISS and Glass-Lewis have mindlessly rubber-stamped Glencores takeover bid, fed by sell-side investment banking analysts salivating at the prospect of a massive bidding war.
But this breathless horse-race narrative has it all wrongand there will be no bidding war. This is not even a bona fide takeover bid. Rather, Glencores bid is nothing more than a cleverly disguised, cynical Trojan horse ploy to undercut a rivaland it has successfully confused business media and proxy advisers.
Glencores opportunistic disruption of a strong competitor
Beneath Glencores rhetorical bravado, enabled by naïve media seeking exclusives, the Swiss firm knows there is no way its takeover bid can succeed, since, as Glencores own CEO acknowledged, one cannot possibly go hostile under the current shareholder structure. There is no acquisition possible without the assent of Tecks A-class shareholderscontrolled by Dr. Norman Keevil alongside his longtime trusted partners Sumitomowho have made it clear the company is not for sale in its current form.
So what is Glencore really up to then? The answer seems to be using the impeccably timed takeover bid as an opportunistic diversion to sow chaos at Teck at a transitory moment of vulnerability, with Tecks non-controlling Class-B shareholders voting right now on whether to split the company into a free-standing Teck Metals, separate from its legacy Elk Valley Resources coal operation.
If Teck were a U.S. company, this would be a non-event as no shareholder approval would be required, but an obscure quirk in Canadian law requires a forbiddingly high two-thirds vote of approval from the voting (but not the total outstanding) B shares, providing a fleeting opportunity for Glencores gambit.
Glencore has nothing to lose and everything to gain by mischievously offering a Trojan horse bid, even knowing they will never actually own Teck. After all, if the split Tecks leaders want is successfully approved, Glencore knows that the new Teck Metalsa crown jewel asset with years of organic growth ahead that has already drawn preemptive serious interest from dozens of potential acquirers, from Freeport to Vale to Anglo to BHPwill be a significantly strengthened rival, insurmountably expensive, and out of Glencores clutches forever.
Glencore has cleverly set up its bid as an ostensible foil to distract some of Tecks B-shareholders, drive wedges against Teck management, and stop Tecks split. For example, Bloomberg quoted unnamed sources as saying that Tecks largest B shareholder, China Investment Corp., was working in cahoots with Glencore when in reality the CIC had refused to even meet with Glencores team, as reported by the Globe & Mails Niall McGee. Furthermore, unnamed sources claimed some of Tecks B shareholders might turn activist against management when in reality the hedge funds in Tecks stock, such as David Einhorns Greenlight Capital, are lining up in support of Tecks split. Glencore has also spun the vote on Teck restructuring plan to be held on Apr. 26 as a referendum on its own takeover bid, claiming that shareholders want Glencore.
Trader-raiders are no white knights
In reality, even without the veto of the A-shareholders, Tecks board and management would in all likelihood face a revolt from angry Teck shareholdersand even more importantly, regulators, governments, and other stakeholderswere it ever to inexplicably sell to Glencore without running a competitive bidding processno matter what the ill-advised analysts are saying.
Glencores skimpy bid is bad economics. It offers a price below where Teck stock has been trading, offering mainly volatile Glencore stock that has been artificially inflated by a transitory windfall from thermal coal, an industry in terminal decline. Glencore also has a track record as a terrible operator, with a reputation of knowing how to trade but not how to run mines, while needlessly inflaming local communities. For example, Polymet, a Minnesota-based mining company, has seen its stock fall by 80% since Glencore took majority control, in part because vehement community opposition to Glencore lead to permitting delays.
Even more importantly, Glencore has been repeatedly condemned over bad business practices. In the last year alone, Glencore paid $3 billionor the entirety of Tecks expected profit in 2020 and 2021 combinedin criminal penalties and fines, pleading guilty to a smorgasbord of charges ranging from bribery of officials by the U.S. Department of Justice, market manipulation by the U.S. CFTC, bribery by Brazilian public officials, corruption by the U.K.s Serious Fraud Office, corruption by the Attorney General of Switzerland, and corruption by the Dutch Public Prosecution Serviceall in just 2022. These are not mere accusations, but bona fide guilty pleas. Former Glencore executives not only admit but also openly brag about paying bribes to top officials and boast about how they fly the world carrying briefcases full of cash.
2022 was not a bad year for Glencorebut rather just business as usual for a shop that prides itself on its savviness and yet whose own history reflects a tendency to overplay its hand by being too aggressive for its own good. Glencore has flouted U.S. sanctions by loudly and proudly paying off sanctioned individuals such as Dan Gertler, a foolish overstep which helped lead to former CEO Ivan Glasenbergs resignation from the CEO job after pressure from Western governments. Glasenberg remains Glencores largest shareholderand the Globe & Mail reported that hes working hard on the Canadian takeover plans.
Tecks shareholders may or may not care about Glencores bad business practicesbut Western governments certainly do, especially because they increasingly care about securing a Made in North America supply chain for rare earth minerals, which is crucial to the clean energy transition. No wonder those governments, across federal, state, and local levels in both the U.S. and Canada, have already expressed serious misgivings about letting the second-largest remaining independent copper miner in North America fall into the hands of a company with a history of ties to authoritarian dictators. Glasenberg, after all, was one of the only Westerners to ever receive Russias Presidential Order of Friendship from no other than Vladimir Putin after the former Glencore CEO personally helped save the Russian strongmans political career. Glencore continues to do some business in Russia todayeven as it declares having no operational presence on the ground.
For a business that prizes secrecy, it is incredible that Glencore has all but invited a barrage of unwanted scrutiny from governments and media by waging an all-out public war over Teck. Perhaps the Swiss firm forgot its own vulnerabilities as it became too used to soft coverage from the usual cast of beat reporters.
Glencores own newly hostile activist investors are unamused by these shenanigans. Regardless of the outcome of the vote to split Teck next week, Glencore might be hitting its limits. In the clash between Tecks philosophy of building a business one ore at a time and the transactional, short-sighted opportunism of trader-raiders, Glencore seems to have bitten off more than it can cheweven if the media narrative is slow to catch up.
Jeffrey Sonnenfeld is the Lester Crown Professor in Management Practice and Senior Associate Dean at Yale School of Management.
Steven Tian is the director of research at the Yale Chief Executive Leadership Institute and former investment analyst at Rockefeller Capital.
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