Anglo American may come under pressure to hive off assets even if BHP’s proposed takeover fails, with the approach by the “Big Australian” firing up debate on how best to unlock value for shareholders.
Anglo said on Tuesday it was working “at pace” to simplify its portfolio after announcing a review of all its assets in February when it reported a 94% plunge in annual profit and substantial writedowns at its diamond and nickel operations.
Speaking at the AGM on Tuesday, chair Stuart Chambers reiterated the group’s rejection “in the clearest terms” of the BHP proposal, which would create the world’s largest copper producer — but also would require Anglo to first unbundle its controlling stakes in Kumba Iron Ore and Anglo American Platinum (Amplats) to shareholders.
BHP, which in mid-April proposed an all-share merger that at the time was worth £25.08 per Anglo share, has also said that it would review the group’s 85% stake in unlisted De Beers. And it has reportedly committed to pay the separation costs of unbundling the two listed companies as part of the deal.
The Anglo board unanimously rebuffed the proposal.
Chambers made it clear at the AGM that London’s strict takeover rules restricted him from discussing the deal but he repeated the group’s line that BHP’s proposed structure created substantial uncertainty and risk for Anglo shareholders and failed to value the company’s prospects.
Reuters reported that Chambers will meet Anglo’s top 30 shareholders to hear their views on the BHP offer.
One shareholder at the AGM asked: “To what extent can you survive if you reject the offer?” adding that he valued Anglo at £41 a share.
CEO Duncan Wanblad told shareholders the group had clear strategic priorities and needed to improve the competitiveness of its assets. “We are working at pace to improve our portfolio. This means creating a simpler portfolio where every asset is there on merit and has a role to play in terms of being either a cash generator to fund shareholder returns and growth in other areas or as a growth engine,” he said.
Yet Anglo could face pressure to move even faster if BHP fails to make a higher offer and it fends off the Australian group or other suitors.
US activist investor Elliott Investment Management has been buying Anglo shares since news of the deal emerged and now has a 2.6% stake. In 2017 Elliott bought 5% of BHP and put pressure on the Australian group to get rid of its oil business and its London listing — it had a dual listing there and in Australia.
BHP’s offer has focused attention on what Wanblad may have to do to unlock the value his company has promised.
“Anglo American has been trading below a sector multiple for at least 10 years, mostly due to [the] metals mix in the portfolio but with arguably some impact of execution quality,” analysts at New York-based Bernstein said in a note, adding they were bearish on a turnaround.
“We wonder if demerging Kumba and Amplats could unlock value, regardless of what shareholders decide ... This is the DIY version of unlocking sum of the parts value,” they said.
Sydney Morning Herald columnist Stephen Bartholomeusz wrote on Wednesday that there was no return to pre-bid status for Anglo.
Catalyst
“Whether or not its offer is successful, BHP has done Anglo shareholders a service because the bid will act as a catalyst to promote deeper analysis of Anglo’s performance, its prospects and the impediments to maximising both,” he said.
Analysts said BHP would have to up its price if it wanted to get a deal across the finish line, especially given the complexity and risks of the deal structure.
“We expect a bump [up] from BHP, and other suitors could enter the mix,” said analysts at Jefferies, who estimate a fair value bid could be at least £33.
Glencore and Rio Tinto have been mentioned as possible rival bidders, though Barrick CEO Mark Bristow on Wednesday told Reuters he had no interest and that Barrick was building its own copper business.
A merged BHP-Anglo would be by far the biggest mining group, producing 10% of the world’s copper and substantial amounts of iron ore and metallurgical coal (used in steelmaking). BHP’s main target is Anglo’s rich copper assets in Peru and Chile, though a merger would also have the advantage that some of Anglo’s mines in Australia are next door to BHP’s.
One analyst estimates the deal could unlock $750m of synergies.
Anglo shares, which initially jumped on news of the BHP proposal, closed 3.5% lower at £26.34 on Tuesday. Under UK takeover rules, BHP has until May 22 to submit a formal bid.
With Reuters
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