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BHP Makes a Bid for Anglo American
26 April 2024
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The IEC have officially announced what some are calling a watershed moment for South Africa’s democracy. Our base case, and that shared by the majority of market participants, was for the ANC to win 45% of the vote, a coalition with the IFP and smaller parties formed, followed by business as usual.

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The Proposal

  • An all-share offer for Anglo American (AGL) by the BHP Group
  • Preceded by separate demergers by AGL of its entire shareholdings in Anglo American Platinum limited (AMS) and Kumba Iron Ore Limited (KIO) to AGL shareholders
  • The two parts of the proposal are inter-conditional

Under the proposal, ordinary shareholders of Anglo American (AGL) would receive:

  • 0.7097 BHP shares for each ordinary share in AGL
  • Ordinary shares in AMS and KIO – in direct proportion to their effective interest in AMS and KIO via their AGL holding

At closing market prices (23 April 2024) the proposal represents:

  • Total value of approx. £25.08 per AGL share held, including £4.86 in AMS and £3.40 in KIO
    • Valuing AGL’s share capital at £31.1bn
  • The offer is 13.7% higher than the closing price of AGL’s on the 23 April 2024

The announcement does not amount to a firm intention to make an offer and there is no certainty an offer will be made. UK takeover rules state BHP must, by no later than 5pm on 22 May 2024, either announce a firm intention to make an offer or walk away.

BHP reserves the right to amend the offer and vary the transaction structure.

If it proceeds, this will be the biggest merger and acquisition since Glencore’s acquisition of Xstrata in 2013.

Our Thoughts

All in all, it is anticipated that a merger would create synergies between the two businesses given the number of commodities shared. The copper assets are the jewel in the crown and the SA exposure is clearly not desired (AMS and KIO).

Some are of the opinion this deal is unlikely to be accepted at this level. AGL has significant assets not yet at full earnings potential. In addition, there is speculation the De Beers assets are potentially up for sale. It is likely AGL would prefer De Beers to be sold and earnings potential of up-and-coming assets be realised before accepting an offer for the rump (AGL less KIO and AMS).

Despite this, the Copper assets are really the bone of contention. BHP want the copper assets and the copper asset are valuable. This offer may attract additional bidders for the AGL rump assets as they are unlikely to allow these assets to go for cheap. Glencore has been rumoured to be interested along with Rio Tinto and talk of potential Middle Eastern Money. Analysts believe the value of Anglo’s assets are up to 50% higher than the current price.

There are many moving parts at play and for now we will have to wait for further updates. As mentioned, the clock is ticking, and BHP have until 22 May 2024 to clarify their intention.

UPDATE

AGL has rejected BHP’s offer stating the proposal is opportunistic and significantly undervalues Anglo American and its future prospects. Further, they believe it significantly dilutes the relative value upside of Anglo American shareholders relative to BHP shareholders.

BHP still has until the 22 May 2024 to “step up or shut up” (technical term…). This is the start of what could become a drawn-out process. We advise shareholders to sit tight.