BHP proposed to buy rival Anglo American for £31bn, a deal that sparked a backlash by the South African Government and major shareholders.
BHP, an Australian company, announced on Thursday it would acquire Anglo in a stock-for-stock deal. This will make BHP the largest copper producer in the world. Copper is a critical metal for global efforts to reduce carbon emissions.
The uninvited approach sent shockwaves throughout the global mining industry, fueling the prospect of a bid war.
Gwede Mntashe, South Africa’s Minister of Mineral Resources, said that his country had a “not-so-positive” experience with BHP. However, he stressed that this was not reflected in the official government position.
Anglo, a London-listed company, has been an integral part of South Africa’s economy ever since Ernest Oppenheimer established the company in Johannesburg in 1917. BHP merged in 2001 with South African miner Billiton, and Public Investment Corporation is the largest shareholder of Anglo.
Mantashe is a close friend of Cyril Ramaphosa and said that the BHP Billiton transaction “never achieved much for South Africa”, leading to the capital leaving the country.
PIC stated that “any transaction will be evaluated to ensure value creation” for our clients. However, it noted that mining is “a critical part” of the South African economic system and that “new opportunities” that may arise within the sector must take into consideration these factors as well as long-term sustainability.
Anglo shareholders would receive 0.7097 BHP share for every Anglo share. BHP has said that it will not be taking Anglo’s South African Iron Ore and Platinum divisions which are listed independently. The shares of these units dropped on Thursday.
BHP stated that its offer valued every Anglo share at 25.08. Anglo shares jumped 16.1 percent to £25.60 on the London Stock Exchange, giving it a market cap of £34.2bn.
Anglo’s biggest shareholders have criticised the offer, which comes after a period with a weak performance of its share price.
Nick Stansbury, Legal & General Investment Management’s 11th largest shareholder in Anglo, said BHP’s approach was “highly opportunistic” and capitalised on Anglo’s “depressed valuation”. He added that this “represents an unattractive proposition” for long-term shareholders.
Iain Pyle is a fund manager for Abrdn and a 25th-ranked shareholder. He said, “The offer price feels like an initial bid that you hope will be revised higher.”
Adrian Frost, investment manager of Artemis Fund Managers and a top-20 share holder, said that the bid price is “way off”. He said: “If I were a BHP share holder and was still able to do a cartwheel, I would do two if this price was offered.”
At the current price, one of the top 15 shareholders said, the proposed takeover would have implications for the UK stock market.
If we don’t stop this, we will continue seeing other UK companies with low valuations taken over by foreign competitors who have a higher value. The UK market will continue to lose value.
Analysts say that the value of Anglo’s copper mines, which are prized in Chile and Peru, is hidden by its vast business.
Frost, Artemis: “The copper here is first class,” Frost said. If you believe that copper will grow structurally, then the price offered is too low.
Four big investors, who own shares in Anglo and BHP said that Anglo needed to demand a higher price for BHP. Or, Anglo could offer another proposal, such as selling assets or merging with other companies of similar size, like Teck Resources or Freeport-McMoRan.
They said that “Anglo must create a compelling alternate if they are going to defend this.”
Anglo has been contacting potential buyers for its De Beers business in the last few weeks. This includes Gulf sovereign wealth funds and luxury houses, as well as wealthy individuals.