Anglo American confirms analyst predictions and promptly rejects BHP’s $40.5b takeover proposal

BHP will need to fork out more than $40.5 billion in its quest to snare Anglo American, according to top global mining analysts, as the Big Australian’s audacious play gets rejected by the British giant.

Anglo confirmed on Thursday it had received an unsolicited, non-binding and “highly conditional” all-share merger proposal from the world’s biggest miner.

BHP put a price tag of $59.6 billion on Anglo, but the Big Australian would effectively pay $40.5b after turning its nose up at Anglo’s South African platinum and iron ore units.

The bid is conditional on those business units being split off into separate holdings for Anglo investors, which BHP has valued at approximately $19.1b.

On Friday, Anglo rejected the BHP proposal, describing it as having a “highly-unattractive” structure and undervaluing the miner’s copper potential.

The rebuff was expected by many key analysts.

Jefferies’ Christopher LaFemina said it would be a surprise if BHP’s proposal to acquire Anglo at £25.08 ($48.09) per share got a deal over the line.

“We estimate that a price of at least £28 ($53.69) per share would be necessary for serious discussions to take place, and a takeout price of well above £30 ($57.52) per share would be the outcome if other bidders were to get involved.”

At £30 per share BHP would have to cough up another $7.9b worth of scrip.

JP Mogan analysts also said BHP, which has a market capitalisation of about $230b, would almost certainly need to boost its bid.

“We are cautious on BHP’s ability to create shareholder value (via the Anglo deal) given the high likelihood of a bump in the consideration offered, which is already sitting 19 per cent ahead of broker consensus valuations,” JP Morgan said in a note to clients early on Friday.

“We believe there is potential for another large diversified miner to have interest in this transaction.”

JP is bearish on BHP and a potential Anglo deal, believing the synergies between the duo are “modest”.

Overnight, shares in London-listed Anglo surged 16 per cent to give the miner a market value of $65.6b, suggesting investors are also expecting a sweetened offer or an interloper.

It has been speculated that Rio Tinto and Glencore could be tempted by Anglo’s copper portfolio and have the firepower to gazump BHP’s approach.

Analysts across the board believe BHP is predominately interested in Anglo for its copper operations in Chile and Peru.

BHP already has a substantial copper presence in Chile, including the Escondida project — the world’s largest mine of the commodity.

A BHP-Anglo tie-up would create the globe’s number one copper producer.

BHP itself highlighted the increased exposure to copper — used in renewable batteries and semiconducting components that are essential for artificial intelligence technology — as the first bullet point under the “benefits to BHP shareholders” section in its announcement to investors.

The copper price has been on the rise since the start of the year, stoked by supply concerns combined with renewed vigour about its potential as a future-facing commodity.

Copper futures gained 2.3 per cent overnight as funds chased the market following BHP’s takeover bid.

Anglo has given BHP a deadline of May 22 to submit a formal acquisition offer. Anglo has faced a series of significant operational and commodity price setbacks over the past year which hit its share price and left it vulnerable to takeover attacks.

It has a sprawling portfolio spanning numerous commodities beyond copper including coal, diamonds, iron ore, manganese, nickel, platinum and potash.

Shares in BHP on the ASX closed down 4.6 per cent to $43.15 as investors digested the news of the potential takeover and the growing prospect of the company having to raise its bid.

BHP told investors on Thursday the combination brings together strengths of the duo in an “optimal structure” and said its shareholders would benefit from an increased exposure to copper.