Copyright tradingview
By Karen Kwok It's the question that just won't go away among mining bankers and investors: could Rio Tinto RIO gatecrash Anglo American's AAL nil-premium offer for $21 billion Canadian miner Teck Resources TECK? There's still time for the British-Australian group's CEO Simon Trott to do so, with over a month to go until the betrothed pair consummate their union with dual shareholder votes on December 9. Stepping in with a higher bid could work for Trott, especially with an activist investor now egging him on.Admittedly, there are strong reasons for Teck shareholders to stick with the Anglo deal on the table. On top of $800 million of annual cost savings, the duo expect $1.4 billion in additional yearly EBITDA over time by combining nearby Chilean copper mines. That specific boost is rare, given how unusual it is to have production sites in such close proximity. It helps explain why investors have cheered the share-based deal that would create Anglo Teck. Their combined market value has hit $65 billion, compared with less than $54 billion the day before the September 9 deal announcement.Thomson ReutersAnglo and Teck's rising market values since deal announcement Still, there are several arguments for a counterbid too. First, Anglo CEO Duncan Wanblad is not offering Teck shareholders any M&A premium. Hence the rampant chatter in recent weeks among financial advisers and investors, many of whom have pointed out to Reuters Breakingviews that the door is ajar for possible interlopers like Rio, BHP BHP and Glencore GLEN, the latter of which also owns a stake in the same Chilean copper as Anglo. More specifically, Rio has been refashioning its business mix since Trott took charge in the summer. It has even explored an asset swap with its largest shareholder, Chinese state-backed Chinalco, to reduce the Beijing-based firm's stake, Reuters reported. A smaller Chinese presence could smooth any share-based deal with Teck, given Canada’s track record of of scrutising of foreign ownership. And the strategic logic is sound. Copper is critical for the green-energy transition, but currently makes up a fifth of Rio’s EBITDA. Analysts expect the company's relevant business unit to flatline from 2028. Buying Teck could fix that and lift the red metal to 33% of Rio's total EBITDA. The returns just about stack up too. Assume Rio offers 10% more than Teck's latest share price, implying a $24 billion outlaying include debt. Next assume Trott wrings out $800 million of savings, equivalent to the Anglo Teck deal synergies excluding the Chilean copper windfall. Add it to Teck's forecast 2027 operating profit, using Visible Alpha data, and tax the lot at 37%. The implied return to Rio would be $1.9 billion, or 8%. That's in line with RBC analysts' estimate of Teck's cost of capital, implying that the deal would start to create value for Rio investors if Teck's earnings grow. Granted, the politics are tough. Trott may have to match Anglo's decision to put the combined group's headquarters in Canada. But that shouldn't be a dealbreaker: Rio already has operations there and its chair, Dominic Barton, is Canadian. Moreover, activist fund Palliser Capital has called for Rio to mount a "now or never" counterbid for Teck, Reuters exclusively reported on Monday. In other words, Trott may soon have reasons to dig out his M&A playbook. Follow Karen Kwok on LinkedIn and X. CONTEXT NEWS Activist fund Palliser Capital has intensified pressure on Rio Tinto to mount a "now or never" counterbid for Teck Resources, urging the mining giant to unify its dual-listed structure and spin off its base metals business to create a copper powerhouse, Reuters reported on November 3 citing a letter to the board. Teck shareholders are due to vote on the Anglo American deal on December 9.
