Anglo American rejects “opportunistic” $39bn takeover bid from BHP

Near the tailings dam at Los Bronces copper mine in Chile. (Image courtesy of Anglo American | Flickr.)

Anglo American (LON: AAL) has rejected a $39 billion takeover offer from BHP (ASX: BHP) conditional to the target company divesting its platinum and iron ore businesses in South Africa.

BHP’s unsolicited offer “significantly undervalued” the 107-year-old mining company and would be “highly unattractive” to its shareholders, Anglo said on Friday in a response widely expected by analysts. 

“The BHP proposal is opportunistic and fails to value Anglo American’s prospects,” Anglo chairman Stuart Chambers said in the statement.

The bid contemplated a structure which the board believes is “highly unattractive for Anglo American’s shareholders, given the uncertainty and complexity inherent in the proposal, and significant execution risks.”

Analysts and some of Anglo’s top investors agreed on Thursday that BHP’s initial offer was significantly lower than the kind of price that would compel the miner to consider the proposal. If BHP wants to initiate negotiations, it will need a sweeter offer.

BHP’s proposal is valued at £25.08 per Anglo share, a 14% premium to the target company’s closing price on Wednesday. For Jefferies’ Christopher LaFemina, a price of at least £28 per share would be necessary for serious discussions to take place.

“If we include our estimate of synergies on an after-tax present value basis, we estimate Anglo fair value to be 2824p per share, which equates to a $42.6 billion equity value. That is 28% above the most recent Anglo share price, and we believe it is a reasonable starting point,” LaFemina wrote.

“Anglo American shareholders may consider fair value closer to the share price in 2023 before operational issues emerged and other suitors may be compelled to act at this price,” said James Whiteside, metals and mining research director at Wood Mackenzie.

BMO analyst Alexander Pierce believes there is room for an improved offer adding that it would be up to management to show how the merger can drive value. “The combined entity would have EBITDA of about $33 billion and would easily be the largest mining company globally, including the world’s largest copper producer at nearly 2Mtpa attributable, which could bring some regulatory scrutiny,” Pierce wrote. “However, copper exposure would reduce overall for Anglo American shareholders, while iron ore would increase.”

Elliot’s $1 billion play

Amid the buzz triggered by the potential tie-up, news of Elliott Investment Management silently building a nearly $1 billion stake in Anglo American, has come to light. The move, reported first by Bloomberg, adds to the challenges Anglo American faces following its refusal of BHP’s approach.

The activist hedge fund, headed by Paul Singer, has been acquiring shares over the past few months, according to sources familiar with the matter quoted by Bloomberg. 

The size of the stake would place Elliott as one of the miner’s top 10 shareholders.

The activist investor is not a stranger to mining. In 2017, it acquired a large stake in BHP and pressured the company to divest certain oil assets. By 2021, the world’s largest miner had made agreements to further reduce its involvement in fossil fuels, such as selling its oil and gas operations to Woodside Petroleum Ltd.

Both Elliott and Anglo American declined to provide comments on the matter.

Copper thirsty

A merger would give BHP about 10% of global copper production. It would also boost its presence in the world’s top copper producing countries, Chile and Peru, as it would gain access to four of the world’s largest copper mines — Collahuasi (with ownership of 44%), Los Bronces (50.1%), El Soldado (50.1%) and Quellaveco (60%). This would improve the company’s exposure to the metal, a key actor in the world’s ongoing energy transition, by about 40%. 

“With copper representing 30% of Anglo American’s total production, and with the benefit of well-sequenced and value-accretive growth options in copper and other structurally attractive products, the board believes that Anglo American’s shareholders stand to benefit from what we expect to be significant value appreciation as the full impact of those trends materializes,” Anglo chairman Chambers said.

Anglo has been a takeover target in recent years after output fell and costs mounted. Potential suitors have been discouraged along the way by Anglo’s complex business structure and mix of commodities, including platinum and diamonds.

Under takeover rules, BHP is required to either make a solid offer for Anglo American by May 22 or walk away.

The potential agreement is already being compared to BHP merger with South Africa’s Billiton in 2001. Another BHP mega-merger attempt was its 2007 bid to acquire rival Rio Tinto, which was rebuffed.