Anglo American will be under pressure to deliver on its proposed restructured portfolio after rejecting global mining giant BHP Billiton's $49bn (R915bn) takeover bid at the 11th hour, even with a seven-day extension meant to iron out differences on the structure of the proposed deal.
Experts are divided over whether Anglo's decision to play hardball with the Australian giant was a smart strategy in the long run.
BHP could not persuade Anglo of the merits of the proposed structure or allay fears around the risk to Anglo shareholders from regulatory hurdles in South Africa, especially public interest concerns, despite an additional sweetener to the offer's cash component.
The Australian-based company committed to measures to appease competition authorities and even proposed a break fee should the authorities not endorse the deal.
Mike Henry, BHP CEO said this week the group believed its proposal for Anglo was a “compelling opportunity for both sets of shareholders”.
Anglo's latest strategy essentially necessitates five sale transactions in five jurisdictions over 18 months, which will not be an easy feat
— Ian Rossouw, equity analyst at Barclays
“We were unable to reach agreement with Anglo American on our specific views in respect of South African regulatory risk and cost and, despite seeking to engage constructively and numerous requests, we were not able to access from Anglo American key information required to formulate measures to address the excess risk they perceive,” he said.
Anglo on Wednesday rejected a request for further extension sought by BHP, citing its bigger rival's failure to address “execution risks” related to the unbundling of Anglo American Platinum (Amplats) and Kumba Iron Ore. with a parallel share offer for remaining assets a major sticking point.
Anglo was confident that a self-initiated review of its own portfolio, which would result in a focus on the copper, iron ore, and fertiliser businesses and exiting platinum, diamond, metallurgical coal and nickel by 2025, would be successful in the long run.
In rejecting the BHP offer, Anglo said the Australian miner had underestimated the complexity of the structure it proposed, yet had repeatedly “stated both publicly and during the engagements that it is unwilling to amend its proposed structure to assume these risks”.
In an interview with our sister publication Business Day, published on Friday, Anglo CEO Duncan Wanblad said public interest considerations were not specific to South Africa and would have posed significant costs and risks to its shareholders.
“They are public interest issues that happen all over the world, but in this particular case would have landed disproportionately on the Anglo American shareholders. And that is what I had a real problem with in the context of value... that was going to be delivered to the Anglo American shareholders.”
Wanblad said Anglo was planning a secondary London listing for Amplats, which would help reduce capital outflows from South Africa when it unbundles its 80% stake in the platinum business. Analysts at JPMorgan had estimated that spinning off the South African assets — as required by BHP as a precondition for acquiring Anglo — would have caused a net R80bn flow out of the country.
A market commentator who spoke on condition of anonymity said he was disappointed in the strategy used by Anglo and the impact it could have on South Africa as an investment destination.
“I’m worried for South Africa. Anglo American has used South Africa unfairly as a pawn in their defence strategy, highlighting the considerable risk of operating in South Africa, and I don’t want that to have repercussions for South Africa or for BHP’s views on the country as a place where great business can be done.”
Mining and metals equity analyst at Barclays, Ian Rossouw, said Anglo's latest strategy essentially necessitates five sale transactions in five jurisdictions over 18 months, which will not be an easy feat.
“While we believe there is likely to be strong demand bid tension for the steelmaking coal assets given recent transactions, other assets might be more tricky to realise the full value potential in current market conditions — such as De Beers, Woodsmith and nickel,” Rossouw said.
Rene Hochreiter, consulting mining analyst at Noah Capital Markets and Sieberana Research, said there would be a lot of pressure on the Anglo CEO going forward.
“There is always the possibility that he may say that platinum group metals (PGM) and diamonds are actually not bad and keep them in-house, especially if prospects for the PGM and diamond industries suddenly improve.”
He believes investor perception towards South Africa has not changed. “The South African government is still hostile towards investors and the mining industry will have to carry on battling virtually on its own.”
Oddo BHF analyst Maxime Kogge said there was now significant pressure for Anglo to deliver on both the promised disposal of its platinum steelmaking coal, diamonds and nickel business, and improve its underlying performance.
“BHP will be able to submit another offer in six months and Anglo will likely attract more interest as it streamlines its portfolio,” he said.
Asief Mohamed, CIO of Aeon Investment Management, said the Anglo-American board and management overplayed the South African regulatory risks in the negotiations.
“BHP made significant concessions in terms of the risks that Anglo American used as a defence strategy. The full extent to which Anglo American leveraged regulatory risks as a defence tactic is debatable. BHP must be commended for the fact that they did not pander to the demands of the Anglo American board and management. The board may over time regret their hard-to-get attitude as another bidder might enter the foray with tighter terms and conditions,” he said.
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