Glencore is bargain hunting at Teck Resources

Glencore (LON: GLEN) has bid for Teck Resources (NYSE: TECK) and as is usual in such cases the bidder is talking up the value creation of the deal. The company being bid for is also – as is entirely usual – shouting that it’s opportunistic, the price is far too low and they’re not for sale anyway. This is all entirely usual. 

However, one little detail about stock markets is that the usual way to play a bid is to buy the stock of the company being bid for, sell short the shares of the bidder. Because the standard economic analysis is that bidders overpay, the shareholders of the bidding company tend not to gain value over time. This standard tactic would leave us – in part at least – out of pocket as the Glencore share price has risen on the news of the bid.

This indicates that the market thinks GLEN is not overpaying, indeed is attempting the purchase at a bargain price.  

Glencore share price from London Stock Exchange Of course, the Teck Resources price has jumped, but that’s a slightly different matter and point. As to Glencore bid for Teck being opportunistic, well, yes it perhaps is.

Tech is in the middle of a slightly complicated (and rather beneficial to insiders) demerger of the coal interests. This would leave a focused copper play as the rump of the quoted vehicle. Glencore’s argument is that there is greater value to be had by first incorporating Teck into Glencore, then merging the two sets of coal interests, then demerging that together.

That there’s value in the coal is undoubted, this past couple of years of high energy prices has shown that. It might also be a useful top of the cycle moment for demerging those coal mines. But the real question here is whether Glencore is trying to get Teck on the cheap?

If this is so then we might want to keep an eye on this.

For Glencore might need to raise its bid, or perhaps another bidder will emerge.