LA Private

All over for BHP’s offer?

All over red rover for BHP’s (ASX:BHP) A60 billion all-paper indicated offer for Anglo American?

Just over a day after the BHP approach was revealed, the directors of Anglo American have rejected BHP’s approach, saying the proposal “significantly undervalues” the company and its future prospects and that the deal’s complexity would be “highly unattractive” to its shareholders.

Anglo American’s chairman, Stuart Chambers, said on Friday that “the BHP proposal is opportunistic and fails to properly value the company’s prospects, while
significantly diluting the relative value upside participation of Anglo American’s shareholders relative to BHP’s shareholders.

“The proposed structure is also highly unattractive, creating substantial uncertainty and execution risk borne almost entirely by Anglo American, its shareholders and its other stakeholders.

“Anglo American has defined clear strategic priorities — of operational excellence, portfolio, and growth — to deliver full value potential and is entirely focused on that delivery,” Chambers said in the Anglo statement.

Two major shareholders – Legal & General Investment Management and Abrnd had already criticised the offer terms as being light on.

BHP’s proposal would see ordinary shareholders of Anglo American would receive 0.7097 BHP shares for each ordinary share in Anglo American, and ordinary shares in Anglo Platinum and Kumba Iron Ore.

Based on the closing market prices as at April 23, 2024, BHP’s proposal values Anglo American ordinary shares at 25.08 British pounds ($48.10) each, and Anglo American’s share capital at 31.3 billion British pounds ($60.03 billion).

Some analysts see a price closer to 30 pounds as having a batter chance of success. That would push the cost past $A72 billion and would probably need a cash component.

Anglo said BHP will bid once Anglo has hived off its South African platinum and iron ore businesses.

It basically wants Anglo’s copper mines, plus iron ore in Brazil, coking coal in Queensland (and near BHP’s 50% owned coking coal JV with Mitsubishi of Japan) and lots of copper.

Given the sentiments in the Anglo statement and the criticism from at major shareholders, it is hard to see BHP succeeding.

It has May 22 to announce whether it will proceed with a formal offer.

Topping up or boost the underlying terms with cash might change the reception, but the Anglo statement doesn’t give BHP much room to move.

South Africa’s state-owned pension corporation is the largest shareholder, with 6.9% Legal & General is the 10th largest with 1.15%.

Two shareholders, Tarl Investment holdings and Epoch Two Investment holdings, hold 6.75% of the shares, but don’t vote. Why? Well, they are the entities that have bought back stock on behalf of the company.

Anglo’s AGM is on Tuesday and the BHP approach is sure to be top of the agenda.