TheChek News Flow

London-listed mining and trading giant strikes agreement with two Asian steelmakers

A consortium led by Glencore has struck a $9bn deal to buy the coal business of Teck Resources, as the London-listed mining and trading giant doubles down on the fossil fuel.

Glencore will pay $6.9bn in cash for a 77 per cent stake in the business, the company said on Tuesday. Japan’s Nippon Steel and South Korea’s Posco will own the rest.

The acquisition comes just over six months after Glencore offered to buy the whole of Toronto-listed Teck, an approach that was rebuffed by the board of the Canadian company built by 85-year-old mining magnate Norman Keevil.

The decision to acquire Teck’s coal business may herald the break-up of Glencore. During its pursuit of Teck this year, Glencore had set out plans to eventually spin off the Canadian steelmaker’s coal business and its own unit into a separate company.

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Schneider boss says there is ‘no unity’ as bloc struggles with substantially higher prices than US and Asia

European industrialists are calling for deeper political union in the EU on energy, including harmonised tax incentives, in a bid to overcome obstacles to the bloc’s industrial competitiveness and ensure a green transition.

Peter Herweck, new chief executive of Schneider Electric, the industrial software and equipment group that ranks in the top 100 European companies by revenue, said a deeper political union “would resolve the energy dilemma that we have in Europe . . . We have 27 governments. There is no unity in coming up with a programme.”

His comments in an interview with the Financial Times follow a call from the big business lobby group, European Round Table for Industry, late last month for “a single Energy Union with a common market, harmonised permitting and tax systems, and a simple, stable and predictable regulatory framework to facilitate investment”.

They also follow a warning last week from Mario Draghi, the former Italian prime minister and European Central Bank president, that Europe was “going nowhere” if it failed to address the question of energy costs “twice or three times what it costs in other parts of the world”. Draghi is preparing a report for the European Commission on how to address the EU’s eroding competitiveness.

In a manifesto prepared with an eye on European parliamentary elections next year and published at the end of last month, the ERT noted that Europe’s industrial contribution to the global economy had declined significantly since 2000.

“Europe’s share of global industry gross value added declined from almost 25 per cent in 2000 to 16.3 per cent in 2020,” the document noted. “Between 2014 and 2019, large European companies were 20 per cent less profitable than their US counterparts, increased revenue about 40 per cent more slowly, invested 8 per cent less, and spent about 40 per cent less on research and development,” it said. 

European industry has long struggled with energy prices substantially higher than in the US and parts of Asia. Over the 10 years to 2020, European gas prices were on average two to three times higher than the US, according to the International Energy Agency.  

The gap risks being compounded after the US introduced its $369bn bumper green transition package, the Inflation Reduction Act, in 2022, which offers generous, extended tax breaks to new green projects. In the EU, tax policy remains the preserve of member states so it has relaxed rules on state aid to deter companies from redirecting investment to the US.

Herweck said the EU needed to heed the lessons of the IRA. “I am not a big fan of subsidies,” he said. “In the US they are not just putting money into things. They are offering tax credits. I understand that it’s different country by country [in the EU]. It’s also different state by state in the US, but they figured out how to do it.”  

Many European companies have argued that long-term tax allowances are better suited to the extended investment cycle required for green industrial projects. They enable manufacturers to offset costs while building scale, said one chemicals industry executive.

Europe could also consider harmonised low interest loans to incentivise investment in reducing energy consumption or in underfunded areas such as power transmission, Herweck said.

In addition to energy, Europe would have to resolve the problem of an ever growing burden of regulation, Herweck added. “Costs are skyrocketing, regulations are getting more complicated,” he said. A deeper political union was needed “to simplify the solution”.

The companies are in advanced talks on a deal that would value the coal assets at close to $10 billion

Canadian miner Teck Resources TECK 3.05%increase; green up pointing triangle is in advanced talks to sell its coal assets to mining and trading giant Glencore GLNCY 0.57%increase; green up pointing triangle in a deal that would cap a lengthy saga and be one of the biggest in mining this year.

The deal would value the business at close to $10 billion and could be announced as soon as this week, assuming the talks don’t fall apart, according to people familiar with the matter.

The deal value, which at roughly $10 billion would be a larger price tag than what Swiss-based Glencore had in mind earlier this year, reflects a robust market for so-called metallurgical coal, the kind used in steelmaking.

Teck has spent much of the year figuring out a future for its coal business. In February, it unveiled plans to split into two independent companies, with one focused on base metals and the other on coal.

Then, Glencore proposed a full-blown, roughly $23 billion merger between the companies. Under that plan, it proposed forming two separate companies for Glencore and Teck’s merged metals and coal businesses, and then later spinning off the combined coal business.

Teck in April rebuffed Glencore’s initial advance and a subsequent revised offer that included a cash component investors could take instead of shares in a combined coal operation. Apart from Glencore’s thermal coal business, Teck raised concerns about Glencore’s oil-trading business and what it said are potential geopolitical risks in certain countries where Glencore operates.

Also that month, Teck called off its shareholder vote on its plan to spin off the coal business, a surprise that analysts said suggested investors were open to a better offer from Glencore or others. It said it would work on an alternative plan, and began engaging with bidders on just its coal assets.

The Wall Street Journal was the first to report in June that Glencore had made a bid just for the coal business.

Glencore earlier this year valued that business at $8.2 billion. In June, it said it would spin off a combined coal company once it had sufficiently reduced its debt, which would be expected up to two years after the transaction closes.

A note from Jefferies analysts on Monday said Glencore’s eventual offloading of coal could “unlock significant trapped value for Glencore shareholders and lift [an environmental, social and governance] overhang on the company’s shares.” Jefferies analysts also said Glencore could pursue more metals projects in low-risk regions and get rid of them in high-risk ones.

In initially proffering the full-company tie-up, Glencore had envisioned a combined metals company that could be a dominant force in copper, cobalt and zinc, critical components in the global transition to cleaner forms of energy.

Glencore’s recent deals include agreeing to take over an Argentinian copper project, and it is also looking to expand its foothold in metals recycling.

Glencore has been rare among major resources groups in sticking with coal. Many large mining companies in recent years have reduced their exposure to the commodity amid pressure from investors, governments and consumers to minimize greenhouse-gas emissions. Glencore has said it would run down those operations by 2050 and spin the business off completely if a majority of its shareholders approves.

Fancy a paloma? As growth slows and the stock slumps, Debra Crew pushes tequila beyond the U.S. and margaritas

LONDON—Shortly after taking the helm at the world’s largest spirits maker, Diageo DEO 0.96%increase; green up pointing triangle CEO Debra Crew made a bold proclamation: She plans to take tequila global.

Following a surge in popularity in the U.S., tequila is on track to become the country’s largest spirit this year, an extraordinary milestone for a drink once associated mainly with sugary margaritas and eye-watering shots.

Crew believes she can replicate that success beyond the U.S. and Mexico, which make up 85% of tequila’s sales.

“My ambition is simple: I want to take tequila around the world,” Crew, a former U.S. Army captain, told Diageo investors in August.

The company, which owns tequila brands including Don Julio and Casamigos, has been trying to boost the liquor’s popularity abroad, in part by pushing the paloma, a grapefruit soda-based cocktail it says is easier to make than a margarita.

It sees the paloma as a way to shift perceptions in Europe about tequila being just a shot-based drink and convince drinkers to choose it rather than wine with their food.

But even as Crew sets her sights overseas, she is facing a tougher environment in some core markets, including the U.S. and Mexico. Some analysts have questioned whether Diageo’s fortunes are too closely tied to tequila, leaving the drinks giant more vulnerable than rivals to a slowdown.

The pressure on Crew intensified on Friday, when the company delivered a surprise profit warning, saying consumption in Latin America was weaker than expected. Shares dropped 12%.

The company’s London-listed stock has declined more than 20% so far this year, and Crew is scheduled to face investors for the first time on Wednesday at Diageo’s capital markets day.

Crew, a 52-year-old Texas native, was catapulted into the top role in early June, after Diageo’s former CEO, Ivan Menezes, died after emergency surgery for a stomach ulcer. He had announced in March that he would retire, with plans for Crew to take over in July.

Menezes, who worked at Diageo for 26 years and served as its CEO for a decade, turbocharged sales by moving the company into more upscale products and tapping into a trend by many consumers to drink less but better.

Last week, RBC analyst James Edwardes Jones, who has covered Diageo for 20 years, flagged “management risk” at the company, saying Menezes was one of the best CEOs he had ever encountered and “a difficult act to follow.” He also warned that Diageo could be facing “a widespread retrenchment” in upscale spirits consumption.

Diageo declined to make Crew, who now lives in London, available for an interview.

Crew graduated from the University of Denver’s cadet training program, where she met her husband, and went on to serve in the U.S. Army for four years, including a deployment to Bosnia.

After leaving the Army, Crew worked for Kraft Foods, selling frozen pizza, and later worked for Mars, Nestlé and Pepsi.

She then became the CEO of Reynolds American, which owns the Camel and Newport brands, taking over as the tobacco company was struggling with declining cigarette volumes and slowing sales of e-cigarettes. She stepped down a year into the role after Reynolds was acquired by rival British American Tobacco.

Crew became Diageo’s North America head in 2020.

One of Menezes’s biggest bets was on tequila, which made up just 1% of Diageo’s net sales in 2014 shortly after he became CEO and now accounts for 12%. Tequila contributed about a third of Diageo’s growth over the past four years and the company, which also owns Johnnie Walker scotch, Smirnoff vodka and Tanqueray gin, is now the world’s largest tequila maker by sales.

Menezes acquired a string of tequila brands, including paying up to $1 billion for Casamigos, co-founded by actor George Clooney.

“Casamigos changed the game,” says Ivy Mix, co-owner and head bartender of Leyenda bar in Brooklyn, N.Y. “Patron made tequila mainstream for young people but with Casamigos suddenly the Midwestern soccer mom is drinking tequila.”

By the end of this year, U.S. sales of tequila will hit $13.3 billion, outstripping vodka and U.S. whiskey to become the biggest-selling spirits category in the country, according to drinks industry tracker IWSR.

Diageo still sees a long runway for tequila in the U.S. It says the drink is in only half the number of households that buy North American whiskey and vodka.

But tequila’s U.S. sales growth peaked in 2021 and has since decelerated, a trend that reflects a bigger slowdown in pricey booze. Pandemic-era savings are winding down and consumers have gone back to drinking at bars and restaurants where cocktails typically cost three times as much as making them at home.

Now the second largest tequila by sales in the U.S. behind Don Julio, Casamigos has lost some of its buzz by going mainstream, says Mix. Casamigos also lacks the strong Mexican heritage that many other tequilas have, which appeals to consumers looking for authenticity.

In the four weeks to Oct. 7, sales of Casamigos in U.S. liquor and grocery stores dropped 5.1% from a year earlier, according to Jefferies. It sells for about $50 a bottle.

Diageo is also facing rising competition. A growing number of tequilas are marketing themselves as additive-free, aimed at consumers looking for healthier alternatives, and other celebrities are trying to mimic Clooney’s success. Last month actor Matthew McConaughey announced that he was launching his own tequila brand, Pantalones Organic Tequila.

U.S. demand had been so strong in recent years that Diageo and other tequila makers say they haven’t had enough capacity to meet it. The agave plant takes seven years to grow. Now a wave of agave plantings is maturing, growth is slowing and prices have fallen to 18 pesos per kg from a high of 32 pesos.

“Finally we’ve got the capacity to not only be able to take tequila around the world but also be able to launch innovation,” said Crew.

As it pushes overseas, Diageo is taking a big city approach to expansion, targeting London and Glasgow in the U.K. as well as European cities including Paris and Milan. While those places don’t have large Hispanic populations, they are home to a number of affluent and well-traveled people, says Diageo’s Great Britain head, Nuno Teles.

At the ADE festival in Amsterdam in October, Diageo teamed up with Belgian DJ Charlotte de Witte to promote Don Julio at a pop-up club, selling palomas and ceviche tacos. At London liquor stores, the company has been promoting Don Julio next to grapefruit soda.

Other booze makers are also looking abroad for growth. Brown Forman in August launched a new ad campaign for its El Jimador tequila in the U.K., and Davide Campari-Milano will kick off an international expansion campaign for Espolòn tequila starting next year.

“Tequila is starting to become, I think, a global phenomenon,” Campari Chief Executive Bob Kunze-Concewitz told investors in May. “Consumers are yearning for it.”

At Vogue World, a star-studded event held recently in London’s Covent Garden, guests drank tequila cocktails made from Don Julio 1942, which sells for around $220 a bottle, or sipped it neat, and Diageo sponsored the afterparty held at a swanky private club in Mayfair.

But so far tequila isn’t widely available in supermarkets or corner shops where most Britons buy their liquor. “Tequila is in the stage of expansion here,” says Diageo’s Teles. “You start with high-end restaurants, clubs, liquor stores and then you gradually increase the availability of the product.”