Anglo American plc (OTC:NGLOY) announced Tuesday that it has agreed to a merger of equals with Teck Resources (NYSE:TECK), creating a combined mining group valued at approximately $55 billion.
The new company, Anglo Teck, will be headquartered in Vancouver, with a primary listing in London and secondary listings on the TSX, JSE, and NYSE.
The deal comes at a nil premium, a structure JPMorgan called “strategically excellent” for Anglo, with Anglo shareholders set to receive a $4.5 billion special dividend prior to completion.
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Following the merger, Anglo shareholders are expected to hold around 62.4% of the new entity, while Teck investors will own approximately 37.6%.
A Tuesday investor note from JP Morgan stated that the combined company is expected to generate approximately 70% of its earnings from copper, with iron ore making up the majority of the rest.
The firm added that the transaction would accelerate Anglo American’s portfolio reshaping and could eventually pave the way for it to become a pure copper producer if its coal, iron ore, and De Beers businesses are sold or spun off.
Anglo estimates a 12-18 month timeline for completion and regulatory clearances and the brokerage expects Anglo Teck will continue to be regarded as a consolidation candidate post close, albeit larger and with additional stakeholder interests.
Management is targeting $800 million in annual cost savings within four years, and a further $1.4 billion EBITDA boost from combining Collahuasi and Quebrada Blanca.
The analysts at JP Morgan also noted that both Anglo and Teck have been takeover targets in the past, which keeps them in the M&A spotlight. However, it sees the risk of an interloper bid as limited given Teck’s share-class protections and Anglo’s higher valuation compared with peers.
Price Action: NGLOY shares are trading higher by 10.90% to $17.16, while Teck shares are trading higher by 12.70% to $39.57 at last check Tuesday.
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