Teck's Pend Oreille plant site in Washington.
Teck Resources Ltd. said July 3 it has agreed to sell to China Investment Corp. shares that represent about 17.2% of its equity. It will use the net proceeds from the transaction of more than C$1.7 billion to reduce its debt.
CIC has agreed to purchase through a wholly-owned subsidiary 101.3 million Class B subordinate voting shares of Teck for C$17.21 per share. Teck will apply the net proceeds of the transaction to reduce outstanding bank debt.
On closing, CIC will indirectly hold some 17.5% of Teck’s outstanding Class B subordinate voting shares, representing about 17.2% equity and 6.7% voting interests in Teck. Upon completion of the transaction, Teck’s Class A shareholders as a group will hold a 61.8% voting interest in Teck, with Temagami Mining Co. Ltd. holding a 28.5% voting interest.
Teck President and CEO Don Lindsay said: “This transaction will have an immediate and very positive effect on Teck’s balance sheet and represents an attractive opportunity for Teck to establish a relationship with a major Chinese financial investor, with a deep understanding of China, the world’s largest consumer of our principal products.”
CIC has advised Teck that it is acquiring the Class B shares for investment purposes as a long- term passive financial investor and has agreed to hold the purchased shares for at least one year following closing.
Lots of caveats
Provided CIC does not sell any purchased shares, it will have the right to maintain its percentage ownership interest through open market purchases or through participation in additional issuances of Teck Class B shares or similar securities or securities convertible into such securities, subject to customary exceptions.
If Teck were to issue additional Class B shares within 12 months of closing at a price less than C$17.21 per share (or securities convertible into Class B shares with a conversion price less than C$17.21), CIC would be entitled to a partial make-whole payment, capped at 8.4% of the aggregate subscription price, payable at Teck’s option in cash or in Class B shares.
CIC also has agreed that after the one year hold period, it will not sell the purchased shares to a participant in the worldwide mining, metals or minerals industries or to a material customer of Teck.
In the event of a takeover bid for Teck, CIC will be permitted to tender its shares, provided that the bid has features associated with a “permitted bid” customary in Canadian shareholder rights plans or is supported by the Teck board.
A standstill provision provides that CIC will not take certain actions, including acquiring additional securities of Teck (other than pursuant to its anti-dilution rights) or soliciting proxies, proposing to effect any extraordinary transaction involving Teck or assisting any third party in doing so.
