The world’s largest mining company, BHP, is expected to boost its $43bn (R788.17bn) bid for rival Anglo American to expand its footprint in the copper market, but shareholders of the target company will have the final say, analysts said this week.
BHP has until May 22 to announce its final firm intention to make an offer or walk away under the UK Takeover Code. However, analysts doubt BHP will pay more.
Mike Henry, CEO of the Australian miner, told the BofA Securities 2024 Global Metals, Mining & Steel Conference in Miami this week that while the Anglo board had restructured its portfolio, shareholders will ultimately have the final say on who can deliver a better plan.
“They have to look at the respective plans and decide which one is going to create the greatest value soonest, and they have to make a determination as to the likelihood of the execution of those plans, including which team they believe is more capable and has a better track record of execution, it is that simple.”
Anglo has also undertaken a review of its portfolio and has decided to focus on copper, premium iron ore, and the crop nutrient business. This will see it exit platinum, diamonds, nickel and steelmaking coal businesses.
Anglo American CEO Duncan Wanblad told journalists the restructuring was in the best interest of shareholders.
“By implementing these changes ourselves we can make sure they are done in the right way and at the right time to maximise shareholder value. On the whole, we believe that shareholder value is maximised by getting to the end state as quickly as we can. To be clear, we are not a forced seller of any asset here, in every decision we will safeguard shareholder value,” he said.
BHP’s latest proposal, rejected by Anglo earlier this week, was £27.53 per share, up from £25.08 per share.
JPMorgan analysts said in a note BHP would need to boost its latest offer by about 30% to reflect fair value for Anglo American and its key copper assets.
“Anglo’s shares now trade at the greatest discount (-13.6%) to the implied value of BHP’s offer, implying that the market assigns a low probability to BHP’s ability to raise its offer and achieve an agreed deal,” the analysts said.
The PIC will consider how much value they are going to get for their members. Ultimately, they are going to have to vote in the best interest of their members. Their members are government employees who have saved or are saving towards their retirement pensions
— Asief Mohamed, chief investment officer at Aeon Investment Management
Asief Mohamed, chief investment officer at Aeon Investment Management, believes that closer to May 22, the date UK takeover rules require a firm and binding offer, BHP is likely to make an improved offer.
“BHP will prefer a friendly takeover; it remains to be seen if the Anglo American board will accept a significantly better offer from BHP. Ultimately the shareholders of Anglo American will decide if they will accept the BHP offer or the proposal to unlock value by the Anglo American board. The board might not be in favour of the BHP offer, the shareholders may be in favour as they may take the view that BHP’s proposal unlocks sustainable value,” he said.
Mohamed said shareholders such as the Public Investment Corporation (PIC), South Africa’s largest asset manager with R2.3-trillion under management, will have a say in the matter.
“The PIC will consider how much value they are going to get for their members. Ultimately, they are going to have to vote in the best interest of their members. Their members are government employees who have saved or are saving towards their retirement pensions.”
Asked for comment, the PIC said it has noted Anglo American’s update on its accelerated strategy to deliver a simplified portfolio, and the improved offer by BHP and its subsequent rejection by the board of Anglo.
“The PIC maintains that it will assess any offers that are presented to shareholders and will engage directly with the investee companies. The PIC is a long-term investor and any transaction presented will be assessed to ensure value creation for our clients. In addition, the mining sector remains a critical part of the South African economy, impacting a wide variety of stakeholders, therefore, new opportunities that may arise in the sector need to take these factors and long-term sustainability into account.”
Arnold van Graan, head of markets research at Nedbank CIB, said often with mergers & acquisitions (M&As) there are several iterations of the deal.
“The structure of the deal changes, but also it is about the value of the deal, getting more for Anglo. That is probably inevitable in most deals, companies are not going to agree on the first offer,” he said.
He said potentially there could be other suitors for Anglo.
“In M&As we often see other suitors step in when they see value. That also helps to crystallise the best value for shareholders if there is a competing bid,” he said.
Van Graan said if there is a competing bid, it should improve the value for shareholders.
“If they do what they said they would do, like spinning off the businesses and creating a smaller company, then they will become attractive from an M&A perspective. I am not sure that it delivers the best value for shareholders in the long run. Yes, a smaller and leaner company makes it attractive from an M&A perspective, but it remains to be seen whether that is the best value unlock for shareholders in the long run.”
Spinning off Anglo Platinum and De Beers comes as diamonds and platinum group metals (PGMs) have been at the bottom of the cycle. The move to cheaper lab grown diamonds and high interest rates have contributed to the depressed diamond market.
Seleho Tsatsi, an investment analyst at Anchor Capital, said: “A lot of water must flow under the bridge before we get to Amplats becoming a stand-alone business. Nevertheless, it may lead to a different capital allocation framework.”
He said at present Anglo American Platinum pays a sizeable proportion of earnings out as dividends.
“Given the large anchor shareholder, it does not generally buy back shares. Its approach to capital allocation may change if the demerger of Anglo American Platinum is completed. The biggest determinant of Amplats and the platinum group metals sector’s performance, as always, will be what happens to PGM prices.”
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