Teck Resources Ltd. TECK-B-T and its controlling shareholder, the Vancouver-based Keevil family, have spent the past five years trying to make the global miner more palatable to investors who are concerned with environmental, social and governance principles – a campaign that culminated Tuesday with the decision to spin out Teck’s steelmaking coal business into a new publicly traded company.
Yet on the very same day, Teck also announced plans to buy out its controlling shareholders, including the Keevils, for $309-million. The family members currently control Teck through their class A shares that each have 100 votes, while widely held Teck class B shares each have one vote. As part of the sunset agreement, all class A shares will convert after six years, and all controlling shareholders will receive one class B share, plus a premium of 0.67 of a class B share, for each class A share they own.
A majority of class B shareholders must approve these terms, as well as the coal spinout, at Teck’s annual meeting this spring. If approved, the class B shares awarded as a buyout premium will be given to the controlling shareholders this year.
Paying such a hefty premium – or any premium at all – to end a dual-class structure is widely frowned upon by governance experts, and in recent years a growing number of founders and founding families have relinquished control of the companies they created for no extra money, including at Alimentation Couche-Tard ATD-T and Lightspeed Commerce LSPD-T.
However, any debate on the ethics of control premiums is spirited in Canada because so many dominant, publicly listed companies are still controlled by their founding families. At the start of the year, 102 companies listed on the Toronto Stock Exchange had dual-class shares, according to TMX Group, and they run the gamut of sectors – from consumer goods (Canadian Tire CTC-A-T), to financial services (the Power Corp. POW-T family of companies), to telecom (Rogers Communications Ltd. RCI-B-T).
There have also been significant precedents in which controlling families were paid huge sums in order to give up control. In 2010, Magna International MG-T paid founder Frank Stronach $860-million in 2010 in return for his class B shares, and in 2012 BCE paid Astral Media’s founding family, the Greenbergs, more per share than common shareholders as part of its takeover, and also paid cash for a third class of shares that the Greenbergs also exclusively owned.
Those payouts, however, are now more than a decade old, and in the years since the practice has been routinely criticized by governance experts.
Public investors have also embraced ESG principles over this time period, and doing so has forced commodity producers to reconsider the carbon footprints. But in an interview, Catherine McCall, the executive director of the Canadian Coalition for Good Governance, stressed that the environment is only one tenet of the movement, and if anything, good governance is its bedrock.
“Governance is foundational,” she said. “You can’t get anywhere with E and S without good governance structures in place.”
On the issue of dual-class shares, investors have even revolted at times. In 2016, retail giant Alimentation Couche-Tard’s four founders sought to extend their control of the company, which was set to expire when the youngest of them turned 65, but the company cancelled a shareholder vote on the proposal after concluding that it did not have the two-thirds support needed.
Founder Alain Bouchard took the rejection personally, but ultimately gave up the campaign in 2020, and in 2021, the 25-year-old special stock rights expired with no extension or compensation to the founders.
It is now commonplace for controlling shares to convert to common stock for no premium. In 2020, for instance, Dax Dasilva, the founder of Montreal payments company Lightspeed Commerce, relinquished his multiple voting shares for no premium because Lightspeed had a clause in its shareholder agreement that stipulated the special voting shares would automatically convert to common shares once the company had grown to a certain size and a certain amount of common shares had been issued.
Although governance experts deride control premiums, they typically appreciate that the issue of dual-class shares is nuanced. Founders tend to want to keep control in order to focus on long-term investment decisions.
In Teck’s case, that logic applies.
The Keevils planted the earliest seeds of the Teck Resources empire in the 1950s by discovering a high-grade copper mine around their family cottage near Lake Temagami, close to North Bay, and over the years they merged their assets with other companies and endured many economic swings. The 1981 recession nearly bankrupted the miner, but they found a way to restructure its operations to survive. The Keevils also invested in the Antamina copper project around 2000 when metals were extremely cheap, which prompted many investors to abandon Teck’s shares for years. Ultimately, though, the project paid off.
That said, governance groups believe there should be a limit to how long a founding family can control a company, because quite often their power remains entrenched even though they have passed off a majority of the financial risk to public owners. Teck’s dual-class share structure has been in place since a 1969 corporate reorganization.
Asked about the decision to collapse the dual-class share structure, Teck chief executive officer Jonathan Price said in an interview that it all began when the miner’s board of directors and management decided Elk Valley Resources Ltd., the new publicly listed company that will hold the coal assets, would have a single share class structure.
“That decision,” he said, “opened the door to a conversation between the board’s special committee and owners of Teck’s class A shares on modernizing and simplifying the company’s governance.”
With reports from Andrew Willis and Nicolas Van Praet