LA Private

Anglo American: Hopes for a takeover battle

Meetings this week of shareholders in Anglo American in London and Rio Tinto (ASX:RIO) (in Australia) will continue to focus on the fate of BHP’s (ASX:BHP) $A60 billion all-share offer for the London-based miner.

BHP shares fell a modest 3.7% last week thanks to the offer news — but Anglo shares jumped 24% in the hope of a takeover battle and higher prices.

Anglo’s meeting is in London on Tuesday (8pm Sydney time) and Rio’s meeting is at 9.30am on Thursday in Brisbane. Both will be watched in person or online for comments on the BHP offer.

Anglo can be expected to continue to reject the approach with the aim of getting better terms (some cash please?).

Reuters claimed at the weekend that BHP was considering a higher offer, but those sorts of leaks and stories are part and parcel of big deals.

You would have to say that in deals of this size, the first bid won’t succeed unless it contains an awful lot of cash — and BHP’s doesn’t, so a new structure will no doubt emerge soon.

Rio will be watched to see if it shows any interest. Brokers and analysts are trying to rev up a bidding war for Anglo involving Rio or Glencore.

Rio, though, is limited financially, with a $US10 billion contribution to the development of the huge Simandou iron ore project (with Chinese and local partners) in Guinea over the next two years as well as normal capex. Glencore has a $US6.9 billion purchase of the coking coal operations of Teck Resources and a commitment to keep debt low for the next couple of years.

Glencore is also hamstrung by the fact that the Teck deal doesn’t settle until the third quarter of this year, and global competition approvals for that deal will give us an idea of how any deal between BHP and Anglo American might be received.

Any analyst or investor — or their media mouthpieces — who touts Rio or Glencore as being interested shouldn’t be believed if they do not mention the Simandou costs in the case of Rio and Glencore’s Teck deal (with its added debt burden).

Analysts and some anonymous big shareholders assert that Anglo’s fate is sealed and it will be taken over and broken up, even if BHP doesn’t get control.

But, as usual, investors are remote from the real world where politics and resources come together, and it is a reminder than in the end China will be the big ‘Yes” or “No’ factor for the eventual fate of the offer, not the price of the deal.

Anglo American rejected BHP’s offer as undervaluing the company and therefore unattractive to its shareholders.

That means it would seem to be a matter of price — but there is a lot more.

Analysis focused on how buying Anglo American would add substantial scale to BHP’s core commodities core, coking coal and iron ore.

So far as copper is concerned, Peru, Chile and the South Australian government will have a say here — and of course, China.

China will have a say on iron ore — as will Brazil and its big iron ore miner, Vale, which is in a joint venture with BHP in the Samarco iron pellet business. There are potentially very large legal judgments facing the company in London, which could spark a battle between BHP and Vale.

Coal won’t be a problem, and Australian approval for the purchase of Anglo’s five mines will be quick in coming, if the deal is approved in other places. Seeing BHP sold off Daunia and Blackwater coal mines in central Queensland to Whitehaven, just how many of Anglo’s mines will be held is up in the air.

The 85% stake in DeBeers is slated to be sold, but not yet with world diamond prices weak and facing more pressure from manmade gems.