The discussion is less about price than about structure. From Moneyweb.
BHP and Anglo American appear to be inching closer to a deal, with structure rather than price being the key obstacle to overcome in the next seven days.
This is despite the Anglo board rejecting BHP’s revised offer where Anglo shareholders would receive 0.886 BHP shares as well as shares in Anglo Platinum and Kumba Iron Ore in proportion to Anglo’s holding in these companies.
While rejecting the latest BHP offer as overly complex, Anglo left the door open for further negotiations. Anglo believes it can do a better job than BHP in uncorking value by exiting its platinum, diamonds and coal businesses, while scaling back investment in its UK-based and heavily criticised potash project.
Anglo American chair Stuart Chambers says the BHP offer does not address the board’s concerns about structure “which results in significant complexity, execution risks, an extended timeline to completion and consequently has the potential for material value leakage to be disproportionately suffered by Anglo American’s shareholders”.
“Multiple engagements with the BHP team have not yet been able to resolve the concerns on these issues.”
Chambers says Anglo remains willing to engage with BHP and its advisors on these sticking points.
This comes on the same day state-owned Public Investment Corporation (PIC), which owns 7.4% of Anglo and 0.9% of BHP, said the earlier offer “would require a meaningful revision” that should “take into consideration the material risks that current shareholders of both Anglo and its subsidiaries would have to assume over an extended time frame”.
The PIC has yet to comment on the latest BHP offer.
“The requirement to pursue two contemporaneous demergers of publicly listed companies [Anglo Platinum and Kumba] alongside a takeover and the inter-conditional nature of the three transactions is unprecedented, and as a result of a takeover would result in additional material approvals and conditions, particularly in South Africa,” says Anglo American in a statement on Wednesday.
In rejecting BHP’s latest offer, Anglo points to its own “simpler standalone plan to accelerate value delivery announced on 14 May” and its proposal to demerge Anglo Platinum – “a single demerger that Anglo American has a proven track record in delivering”.
Agreement on value?
BHP believes the deal is closer than is suggested by Anglo’s outright rejection of the latest offer. For one, the BHP offer values Anglo at £31.11 a share based on the closing share prices of BHP on 22 May 2024 and Anglo Platinum and Kumba on 21 May 2024.
That’s an improvement on the £29.91 value when the deal was first announced on 23 April.
BHP’s statement on Wednesday notes that the revised share offering is about 25% better than the previous proposal, increasing Anglo shareholders’ aggregate ownership in the enlarged group from 14.8% to 17.8%.
The latest BHP offer of £31.11 per Anglo ordinary share includes £5.40 in Anglo Platinum shares, £4.23 in Kumba shares and £21.48 per share for Anglo American’s unlisted assets. That values Anglo American at about £38.6 billion (R900 billion).
That’s a 47% premium to Anglo’s price prior to the BHP offer, and a 67% premium on Anglo’s unlisted assets.
There appears to be less dispute about value than about the structure of the deal, in particular, the complexity of distributing shares in Anglo Platinum and Kumba to Anglo shareholders, which would require approvals from the Competition Commission and other regulators.
There are also some concerns among analysts over Anglo’s go-it-alone plan to unlock value, and the execution risk the BHP offer implies – with permissions required from multiple jurisdictions to complete the deal, which could take 18 months.
Anglo’s DIY unbundling would face a similar uphill in getting permissions from regulators, trade unions and other stakeholders, and that could easily take 18 months, or more.
BHP has until 29 May – election day in SA – to make a firm offer for Anglo or announce that the deal is off the table. Given the elections underway, a further extension of the deal announcement deadline is likely. Anglo has already conceded to a seven-day extension.
BHP issued a statement on Wednesday that the share swap ratio (0.886 BHP shares for each Anglo share, plus a pro-rata distribution of Anglo’s share in Anglo Platinum and Kumba) is final.
BHP says it will not increase the final offer unless a third party enters the bidding fray, the Anglo board pushes for a better deal, or the London Stock Exchange Takeover Panel intervenes.
