The corporate dance of offers and counter-proposals between BHP and Anglo American has set a stage that’s as much about strategic foresight as it is about the immediate lure of wealth.
At the heart of the debate among the shareholders, watching from the wings waiting to see how their interests will be served, lies a fundamental question: should Anglo investors accept the immediate gratification of BHP’s R700bn-plus all-paper bid or place their bets on their company’s coherently laid-out promise of a more rewarding future?
Anglo’s counter to BHP’s offer is a story of self-reliance and strategic patience. By proposing to split and hive off its platinum assets, Anglo more or less echoes BHP’s proposal but adds a layer of complexity. The plan eschews the immediate sweetener of a premium in favour of a long game, betting on the company’s ability to deliver a largely similar but smaller portfolio to the proposed tie-up with its larger Australian rival.
Yet this move is not without its critics, who question the wisdom of entrusting the future to a management whose track record of returns has been comparatively less than illustrious. According to Jesus Rodriguez Aguilar, an analyst who publishes on Smartkarma, Anglo’s shares have delivered about 46% in absolute returns in the past five years, versus 130% for BHP and almost 100% for Rio Tinto.
The allure of BHP’s offer lies in the immediate value it provides to shareholders, a treasure chest that investors can open now, complete with a premium and the comfort of certainty.
To be sure, Anglo’s break-up plan could potentially offer more value for shareholders than BHP’s proposal.
The allure of BHP’s offer lies in the immediate value it provides to shareholders, a treasure chest that investors can open now, complete with a premium and the comfort of certainty
Based on the current market value of Anglo’s listed assets and the estimated value of unlisted businesses such as copper, Brazilian iron ore assets, steelmaking coal and De Beers, Anglo is worth $46bn, at worst, and $49bn, at best. It depends on which analyst you speak to or the size of the conglomerate discount you apply and whether you strip out $11bn in Anglo debt. But it is, at the very least, more than 7% higher than BHP’s proposal.
Still, the ghost of execution risk haunts Anglo’s proposal. With diamonds at a low point in the cycle and metallurgical coal assets selling at a discount, the plan’s feasibility is under scrutiny. Is this the right time to sell? If Anglo hesitates to complete the capital expenditure programme for Woodsmith, what message does that send to potential buyers?
These are not trivial questions. They go to the heart of the discussions among shareholders who are faced with a stark choice: a bird in hand or two, three or four birds in the bush? As the deadline looms for BHP to “put up or shut up”, the decision for Anglo shareholders — about 26% of which are based in SA — isn’t just about numbers on a balance sheet; it’s about trust in a vision and the appetite for risk. Will shareholders be swayed by the promise of Anglo’s vision for a chance to run with the wind, chase the setting sun and discover what lies beyond the edge, or will they respond to BHP’s siren call to eschew the risks in pursuit of greater rewards for an immediate but smaller value uplift?
The choice they make will not only determine the fate of their investment but also send a strong signal to the market about what shareholders truly value in these turbulent times. The future of Anglo hangs in the balance, and the move is crucial. Will it be a checkmate by BHP or a masterstroke by Anglo? The board is set, the pieces are moving and the game of corporate strategy is in full swing. Let the audience shareholders be the judge.
• Motsoeneng is Business Day deputy editor
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