Wednesday is D-Day for Australian mining giant BHP, which under London’s “put up or shut up” rules must make a formal offer for Anglo American by 6pm SA time — or walk away from its proposed merger deal for at least six months.
Anglo last week unanimously rejected a second, higher all-share offer from BHP, instead announcing its own radical restructuring plan to unlock value for its shareholders.
BHP has given strong indications that it will walk away from its $34bn deal unless Anglo’s board is willing to engage with it — something the board has so far declined to do.
As the target company, Anglo is allowed to ask the London Stock Exchange to extend the deadline. But it might do that only if its own shareholders put it under pressure to talk to BHP — or if BHP makes a third, higher offer. Market talk suggests this would have to be at least £30 a share — 9% higher than the second offer — ideally sweetened with some cash.
It is understood that by Tuesday there was no sign of a third offer, nor any indication that Anglo’s board had any appetite for talks.
Some of Anglo’s large shareholders have expressed support for its own far-reaching restructuring plan, in terms of which Anglo would unbundle its platinum business, as well as selling or spinning out its diamond and steelmaking coal businesses. Anglo CEO Duncan Wanblad last promised the plan would be substantially complete by end-2025.
BHP, the world’s largest and most valuable miner, has targeted Anglo for its rich copper mines in South America at a time when the world is chasing copper for its central role in the green transition. BHP has promised not to overpay for Anglo, but at least some of its shareholders are keen to see it get its hands on those copper assets as soon as possible even if it means paying more.
Australian media speculated at the weekend that a battle was under way in the BHP boardroom over how much it could or should pay.
The Australian miner’s strategy had the support of key shareholders but the market was fearful of overpaying and the big question was how much more BHP would need to bid to get Anglo to the bargaining table.
“Whatever happens here, this looks like the defining moment of [CEO Mike] Henry’s time in charge of BHP. Either he presses ahead and pays up to do a deal that will dominate his legacy, or he walks away displaying all the capital discipline he’s preached since taking the top job four years ago,” a column in the Australian Financial Review reads.
‘Highly unattractive’
Anglo rejected both BHP bids on the grounds that they significantly undervalued it and that the structure was “highly unattractive”, exposing Anglo’s shareholders to high levels of risk.
BHP’s second bid was worth £27.53 per Anglo share and, like its first, required Anglo to unbundle its 70% of Kumba Iron Ore and 80% of Anglo American Platinum (Amplats) as preconditions for a deal.
But JPMorgan estimated in a report on Friday that Anglo’s copper division alone was worth at least £30 a share and could be worth much more on a stand-alone basis. That suggests BHP would have to up its bid for the “rump” assets, excluding Kumba and Amplats, by about 30%.
“Under both BHP’s proposal and Anglo American’s strategy, both outcomes would create an entity [in which] copper is the dominant source of ‘value’,” JPMorgan said. “We retain our view that Anglo American remains undervalued and the board retains significant strategic optionality to unlock value.”
For Anglo’s shareholders, it comes down to whether they stand to gain more from going with the much larger, better-rated BHP or from staying with Anglo and its “self-help” strategy. It is also possible that another bid could come along for some or all of Anglo’s assets.
If it goes ahead with a deal, BHP would be expected to face a string of tough regulatory hurdles in SA, where it would need approval from the Reserve Bank and the Treasury, as well as the trade, industry & competition minister and competition authorities.
It is likely to be approved only with a layer of public interest and other conditions.
Analysts at Liberum in London said in a report that a very large premium to the existing offer would certainly help start conversations with Anglo’s board and shareholders.
A simpler structure could also help to get it over the line. “Anglo rightly has concerns on the execution risk on that structure and should be compensated for it,” Liberum said, noting that the existing structure of the BHP offer could quickly become an “expensive, time-consuming proposition”.
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