Chances are that BHP thought it would have a quiet conversation with Anglo American about a possible merger, never thinking it would go public. In the event, it leaked just a month before SA’s national election. And it rapidly became a pre-election political football as a chorus of unlikely voices sprung to Anglo’s defence.
ANC detractors have enlisted BHP’s proposal as further evidence of how terribly the ANC has managed the mining sector and the economy. Government has responded with an equally robust defence of the company and the country, in the process giving business a lot more credit than it usually does for the hard work it is doing to try and fix the economy (in partnership with government, of course).
The bid clearly does come as a reminder of how unattractive a mining jurisdiction SA now is. Indeed, the “SA discount” global investors attach to Anglo’s shares is one of the reasons it is undervalued and vulnerable to a takeover bid. But at another level this is all part of the way the game is played.
The defenders will play the country card, reminding local shareholders and regulators of Anglo’s iconic status in SA (despite its London headquarters) and the key role it plays as a corporate citizen as well as an anchor for the mining industry. The attackers will play the company card, pointing out that Anglo has traded at a discount to its underlying value for about two decades and that they can do better if they throw in their lot with Australia’s iconic and highly rated BHP.
There’s truth in both narratives. Indeed, the best spin always rests on true stories — just a question of how you tell them. But this is too complicated a deal to fly as a hostile takeover. So BHP will have to persuade shareholders with the right price and structure. And assuming a formal bid is made, shareholders will have to decide on commercial grounds.
Who can do it better?
Many Anglo shareholders also hold BHP shares. That includes Anglo’s largest shareholder, the Public Investment Corporation, which is in the almost 4% of BHP held on the SA register. They will have to weigh up any deal from both angles. It’s complicated. There’s no question that Anglo needs a shake-up or a break-up. The real question is who can do it better, and unlock more value and growth for shareholders.
BHP’s insistence that Anglo must unbundle its 80% of Anglo Platinum (Amplats) and 60% of Kumba Iron Ore has loomed large in the political debate as evidence of BHP’s distaste for SA. But this is where BHP too will likely mount a country defence — arguing it will be setting the two Anglo subsidiaries free and bringing them home.
An unbundling will mean Anglo’s shareholders will hold those Kumba and Amplats shares directly. So the shares will be far more liquid and more tradeable on the JSE. It will also mean they will be independent SA companies rather than subsidiaries controlled by a UK parent — and BHP will no doubt point to the extent to which Anglo has used cash from those companies to fund its growth abroad. Expect some spin from BHP along the lines of it creating SA national champions, with new BEE partners to boot.
Interestingly, in Kumba’s case BHP’s motivation to get rid of it is more likely to be about antitrust concerns than about SA. The Australian group is one of the world’s largest iron ore miners and a huge supplier to the Chinese market. It loves iron ore. But resistance from Chinese regulators was one factor in the failure of BHP’s 2007 bid to buy rival Rio Tinto, also a large iron ore producer. It may fear the same again — in which case it might end up selling Anglo’s unlisted Brazilian iron ore assets too.
Pressing ahead
What else might be on the block is a question. Anglo’s SA manganese assets haven’t been mentioned anywhere, for example. Nor is it clear whether BHP would want to sell De Beers, though it will review Anglo’s stake. But Anglo itself has promised to simplify its portfolio. CEO Duncan Wanblad told shareholders this week the group was pressing ahead with this “at pace”, as promised when the group released its results in February. Anglo will surely be looking at some of the same options BHP is.
It will argue it is better placed to do the shake-up, or break-up. It has the home ground advantage. It has done this successfully before, to the benefit of SA and its shareholders, it can argue, reminding us that Anglo created companies such as Exxaro, African Rainbow Minerals, Seriti and most recently Thungela by spinning out assets.
What’s increasingly clear is that there is no going back to Anglo’s pre-bid world, whether or not the merger goes ahead. But shareholders will have to decide which team they prefer to take Anglo forward. BHP has undertaken to fund the $2bn-$2.5bn separation costs involved in the demergers.
It expects significant synergies from putting its assets, particularly in Australia, together with Anglo’s. It has a lot more firepower than Anglo, with a balance sheet better able to fund growth prospects and a team and a share that’s more highly rated by the market. And a merged group would be the world’s largest copper producer and one of its largest producers of metallurgical coal.
But there is a long game before we even know whether there will be a merger. If BHP gets the deal over the line with both sets of shareholders — and fends off any rival bidders — it faces regulatory scrutiny across a host of jurisdictions. And if the deal is politically sensitive in SA, it could be just as much so elsewhere given its huge scale and copper’s importance as a critical mineral.
We can probably expect Anglo’s traditional Mining Indaba dinner to go ahead at its Vergelegen wine farm in February. And quite possibly in February 2026 too.
• Joffe is editor-at-large.
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