A worker attends to machinery at a smelter plant at Anglo American Platinum's Unki mine, in Shurugwi, Zimbabwe, on May 16, 2019.Philimon Bulawayo/Reuters
BHP Group Ltd. BHP-N, the world’s biggest mining company, is seeing its megamerger proposal with Anglo American PLC fall apart, with the smaller company rejecting BHP’s call to extend the takeover talks.
Anglo’s rejection almost certainly kills BHP’s proposal to put the two companies together, which would have created the world’s biggest producer of copper, a metal considered critical to the transition to a low-carbon economy. Only a few days ago, it seemed the two sides were on the verge of an agreement.
While BHP has the option of converting its all-share proposal to a hostile takeover attempt, no analyst expects such a move. BHP, led by Canadian chief executive officer Mike Henry, has shied away from hostile deals since two previous unfriendly attempts, including one for fertilizer company Potash Corp. of Saskatchewan, in 2010, went nowhere.
Anglo, whose shares trade on the London Stock Exchange, said Wednesday that BHP’s latest proposal, valued at about £39-billion ($68-billion), was overly complicated and failed to address some of its main concerns about joining forces. Anglo’s refusal to extend the takeover proposal talks for a second time came just hours before the “put-up-or-shut-up” deadline that would have required BHP to convert its proposal to a firm offer or walk away.
BHP did not want to own all of Anglo. Its offer, launched five weeks ago, would have seen Anglo spin off two majority-owned South African businesses, Anglo American Platinum (Amplats) and Kumba Iron Ore, that Mr. Henry did not want in BHP’s global portfolio of assets. Once the demerger of Amplats and Kumba was completed, BHP would have bought the rest of Anglo, though it would still have sold a few other assets, including the De Beers diamond company.
“BHP has not addressed the board’s fundamental concerns relating to the disproportionate execution risk associated with the proposed structure and the value that would ultimately be delivered to Anglo American shareholders,” Anglo said in a statement. “The board has therefore unanimously concluded that there is no basis for further extension [of negotiations].”
Anglo feared inordinate execution risk, since the two spinoffs would require various regulatory approvals in South Africa. Analysts also said that demergers would greatly increase the liquidity of the shares of Amplats and Kumba, since Anglo would no longer be the majority owner, in effect inviting shareholders to bail out and causing the shares to sink.
Some analysts were highly critical of BHP’s strategy to buy Anglo, suggesting that it should have kept the proposal simple by offering to buy all of the company, not just significant parts of it.
“What an absolutely farcical month in the life of BHP,” said analyst Angus Aitken of Australian investment firm Aitken Mount Capital Partners. “That was a very poorly handled piece of attempted M&A and ended up achieving absolutely zero except telegraph that they want to do a giant US$40-billion M&A again.”
As part of its effort to rebuff BHP, Anglo unveiled a radical restructuring plan two weeks ago that will see it selling or demerging De Beers, curb spending on its overbudget and delayed Woodsmith underground fertilizer project in Britain, and unload its coal and platinum businesses to create a “radically simpler business.”
Teck Resources Ltd. TECK-B-T, Canada’s biggest diversified mining company, came up with a similar plan to fend off last year’s attempt by Glencore PLC of Switzerland to buy the whole company. Teck rejected Glencore’s offers, then agreed to sell Glencore its metallurgical coal division, allowing the Canadian company to focus on its copper expansion in South America and elsewhere.
Anglo believes its restructuring plan will add more value to the company than BHP’s latest proposal, which it said valued its shares at £29.34, based on the closing price on April 23, the day before news of the merger talks became public. The previous proposal valued Anglo at £27.53 per share, whereas the opening proposal came in at £25, then valuing the company at £31-billion.
In London trading Wednesday afternoon, Anglo shares were down 2 per cent, to just over £25. BHP closed flat in Sydney trading.
BHP expressed surprise that its newest proposal, which it said represented a 47-per-cent premium, was rebuffed. Mr. Henry has said that putting the two companies together made strategic sense and would have created a global copper, iron ore and metallurgical coal powerhouse.
“BHP and Anglo American are a strategic fit, and the combination is a unique and compelling opportunity to unlock significant synergies by bringing together two highly complementary, world-class businesses,” he said.
In an effort to win over Anglo, BHP made a variety of commitments, including offering a break fee if the deal failed to receive regulatory approvals and job security for employees in South Africa. BHP also said it would bear the costs of any increased South African employee ownership required in the two demergers.
BHP, which is eager to expand in critical metals, especially copper, is not expected to remain idle. Mr. Aitken has said that doing a deal with Glencore, a strong copper player, might make sense. Glencore was attracted to Teck primarily because of the Canadian company’s copper assets. BHP is the third-largest copper producer in the global mining industry.