With just hours to go until the “put up or shut up” deadline for BHP to submit a formal offer for Anglo American, Anglo has again rebuffed the Australian group’s merger proposal — and declined to extend the deadline even though BHP has now promised a wide range of “socioeconomic measures” to allay concerns about a deal.
That has set the stage for a knife-edge day by the end of which BHP will either walk away, or persuade Anglo to get back to the negotiating table, possibly by sweetening its all-share offer with some cash.
Only Anglo as the target company can extend the deadline again, after it agreed last Wednesday to a one-week extension to allow time for talks, reportedly under pressure from some of its largest shareholders. That means in terms of London takeover rules that BHP must submit a formal offer for Anglo by 5pm UK time on Wednesday — or walk away for at least six months.
But the Financial Times reported on Tuesday evening that talks between the two parties had deadlocked. The main sticking point is the structure of the deal — which requires that Anglo unbundle its controlling stakes in Anglo Platinum and Kumba Iron Ore before the merger can be consummated.
And while BHP released a statement early on Wednesday that demonstrated it had taken on board some of the concerns about the regulatory complexities and public-interest aspects involved, particularly in SA, the Australian mining giant has again refused to change the deal structure.
That prompted Anglo to counter midmorning on Wednesday with a statement saying that based on extensive engagement with, and feedback from, its shareholders, its board had unanimously concluded there was no basis for a further “put up or shut up” extension.
BHP committed to maintaining employment in SA for at least three years as well as to share the costs of increased employee ownership, supporting local procurement in SA, maintaining funding for Anglo’s charitable commitments in SA and establishing a mining centre of excellence to support R&D, training and promotion of SA as a “premier mining destination”.
But Anglo said on Wednesday that BHP continued to underestimate the risks of the complex structure, which was in clear contrast to Anglo’s simpler stand-alone restructuring plan announced earlier this month. The “value risk” of BHP’s proposed structure would be exclusively for the account of Anglo’s shareholders as well as eroding value for Anglo Platinum and Kumba shareholders.
The main concern is over the lengthy and unpredictable negotiations that would be required with SA’s regulators, particularly its competition authorities. They would be likely to impose a host of public-interest conditions on all three companies to approve the deal, as they have done in other large cross-border takeovers — and as SA’s competition legislation entitles the trade, industry and competition minister to do.
In its Wednesday early morning statement, which BHP said was issued without Anglo’s approval or agreement, the Australian group outlined a series of measures it said would “provide substantial risk protection for Anglo American shareholders” and supplement the significant value uplift they would receive from the proposed merger.
BHP said the measures it had proposed to Anglo’s board would support SA regulatory approvals and provide greater economic benefits to SA than Anglo’s own restructuring plan. BHP also said it would be willing to discuss an appropriate reverse break fee that it would pay Anglo if it failed to achieve the necessary antitrust (competition) and regulatory approvals in SA or elsewhere.
Anglo countered that BHP’s proposed socioeconomic measures, which BHP said would help to gain regulatory approval for the deals, did not “sufficiently address the fact that Anglo American’s shareholders would bear disproportionate execution and value risks and uncertainty over an extended period”.
Anglo said it had engaged extensively with BHP and its advisers but the Australian proposal was still the same highly complex and unattractive structure it had rejected twice previously. “The requirement to pursue two contemporaneous demergers of publicly listed companies alongside a takeover and the inter-conditional nature of the three transactions is unprecedented,” Anglo said.
BHP’s statement on Wednesday morning came after it improved the value of its proposed all-share offer last week and Anglo agreed to extend the deadline to allow time for talks. Anglo is reported to have done so only under pressure by its shareholders, particularly BlackRock.
BHP said it continued to believe there would be clear benefits to SA from Anglo Platinum and Kumba becoming stand-alone entities with increased JSE weightings and independent SA management teams. “As self-governed companies, Anglo Platinum and Kumba Iron Ore would be better placed to reinvest cash flow and capital directly into SA,” the statement reads.
BHP said it would increase its presence in SA and build on Anglo’s legacy of social investment and value creation. It would also maintain current employment levels and funding for Anglo’s charitable commitments. There was no certainty it would make a formal offer, it said.
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