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If BHP’s chief executive Mike Henry hoped to use this week’s Bank of America mining conference to announce an agreed deal for rival Anglo American, he will be sorely disappointed.
On Monday, Anglo rejected a revised all-share offer from the Australian miner, which valued the company at about £34bn. BHP had increased the number of its shares on offer per Anglo share by 14.6 per cent. This remains insufficient, given the complications of a proposal that includes the value of Anglo’s stakes in Johannesburg-listed Anglo American Platinum and Kumba Iron Ore.
BHP is still asking Anglo to do the heavy lifting in what Liberum analysts call a “doomed” deal structure. That made it easy for Anglo’s board to reject, citing “significant execution risks”. Anglo could restructure itself and reap potential rewards without the overhang of BHP’s deal.
Inspiring Anglo’s team to prise apart the company on BHP’s behalf would require a higher premium. The last pitch was 30 per cent above where Anglo’s shares were trading before BHP’s interest became public, a typical takeover premium. Note that Anglo’s shares were already trading near the revised offer, falling slightly on the news. BHP’s sweetener of two board seats for Anglo, and talk of a deal that “leverages the best” of both companies, doesn’t mask the fact that this is a takeover and dismemberment offer.
It is hard to see these two sides coming together before the UK Takeover Code deadline of May 22. Henry is pledging discipline. His investors would take poorly to handing over more of the combined company for assets that BHP has already says it doesn’t want. Already the deals looks like it will be dilutive to earnings per share: every bump in the share ratio requires more cost cutting, or asset sales.
All of which underlines the difficulties of attempting to buy a rambling country estate just to own the wine cellar. BHP’s ability to go hostile looks limited. It may yet have a third proposal to come. But it is in essence banking on Anglo CEO Duncan Wanblad’s new standalone strategy, set to be announced on Tuesday, flopping miserably.
Anglo — which back in its conglomerate past did own Stellenbosch vineyards — must credibly pledge bold action to address its long-term valuation discount, 10-15 per cent over a decade, or expect more incoming. Activist Elliott Management has built its position in Anglo, passing 3 per cent last week using derivatives; it has yet to reveal its hand. Whatever BHP’s next move, Anglo will remain in play.
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