Teck Resources' Highland Valley Copper Mine near Logan Lake, B.C., in September. Anglo Teck, the company that will be formed after the proposed merger of Teck and Anglo, plans to have its primary listing on the London Stock Exchange.DARRYL DYCK/The Canadian Press
Institutional investors are campaigning to keep Teck Resources Ltd. TECK-B-T listed in domestic stock market benchmarks after the miner completes its proposed merger with London-based Anglo American PLC NGLOY, a move aimed at countering the hollowing out of corporate Canada.
At an event earlier this month, S&P Dow Jones Indices, which runs the S&P/TSX benchmarks, faced heavy pressure from fund managers to keep a company that will rank among the world’s largest copper miners in domestic indices. Analysts and investors who attended S&P’s annual Canadian Index Advisory Panel meeting in Toronto on Oct. 8 said the index operator seemed open to changing the rules.
In September, Teck and Anglo announced a union that will create a global miner known as Anglo Teck. The transaction is expected to close by late next year if the merger is approved.
Anglo Teck’s head office will be in Vancouver, Teck’s home, but the company will be incorporated in London, Anglo’s base. The company plans to have its primary listing on the London Stock Exchange (LSE), but also trade on the Johannesburg, New York and Toronto exchanges.
Under S&P’s current rules, Anglo Teck would no longer be eligible for the S&P/TSX Composite Index and the blue-chip S&P/TSX 60, which drive stock picks at most domestic institutions. Index investors are expected to sell 44 million Teck shares, worth roughly $2.4-billion, if the company merges with Anglo.
After October’s S&P meeting, several investment banks published reports predicting the index operator will change its methodology and allow Anglo Teck to stay in S&P/TSX indices.
“Based on feedback from Canadian fundamental investors, it appears this transaction and the potential to lose a mining giant from the Canadian landscape is clearly significant enough to spark a more serious debate,” said analyst Peter Haynes at TD Securities in a report.
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The Anglo Teck merger should be the catalyst to “protecting Canada’s domestic benchmark from further hollowing out due to cross-border M&A,” said Mr. Haynes.
Domestic equity benchmarks are heavily skewed toward banks and telecom companies. Over the past two decades, Canadian mining heavyweights such as Alcan Inc., Inco Ltd. and Falconbridge Ltd. exited public markets and the S&P/TSX indices when they were acquired by foreign companies.
Teck’s second-largest shareholder is U.S. index fund manager Vanguard Group Inc., with a 4.2-per-cent stake in the company, or 20.3 million shares, according to regulatory filings. BlackRock Inc., another index investor, also owns a significant position in the miner.
Teck’s 10 largest owners also include funds managed by Royal Bank of Canada, Canadian Imperial Bank of Commerce and Power Corp. of Canada. The largest shareholder is China Investment Corp., which has recently been selling down its stake and holds 27.2 million shares or 5.7 per cent of Teck.
“Globalization of investing has rendered local country benchmarks moot, yet they are still important reference indices to domestic fund managers,” said Mr. Haynes. “As such, index providers need to figure out how to make local benchmarks best reflect the local market’s investment opportunity set.”
In May, S&P updated its rules to make all TSX-listed and Canadian incorporated companies eligible for the S&P/TSX indices, regardless of where they are domiciled.
S&P Dow Jones Indices spokespersons have consistently declined to comment on the impact of a Teck merger with Anglo as the transaction has not been finalized.
Teck and Anglo need shareholders in both miners to vote in favour of the merger as well as federal government approval to close the transaction, a process that is expected to take up to 18 months.
If the merger is approved, Anglo Teck will be part of the Financial Times Stock Exchange 100 Index, a rival to S&P’s products and part of the LSE.
“The primary listing of Anglo Teck will be on the LSE, although there are ongoing discussions with the TSX and index providers over potentially retaining some level of indexation in Canada,” said Deutsche Bank analysts Liam Fitzpatrick and Bastian Synagowitz in a recent report.
Teck is the country’s largest publicly traded base-metal miner, with a $30-billion market capitalization. The largest company in the sector is gold miner Agnico Eagle Mines Ltd., with a $110-billion valuation.