Anglo American is looking for a better valuation – including that of its South African-focused iron ore and platinum group metals units – from BHP after rejecting the Australian resources giant’s revised and improved offer on Monday.
BHP has raised the valuation of Anglo American to nearly $43 billion (R788bn from R741bn previously) in its revised offer, which was tabled to the Johannesburg- and London-listed diversified mining group on May 7.
However, Anglo American yesterday rejected the new offer, which still insisted on the unbundling of Kumba Iron Ore and Anglo American Platinum as conditions precedent, leaving BHP “disappointed” and scrambling for a way forward in its quest to grow its portfolio and exposure in copper.
Analysts told Business Report yesterday that the board of Anglo American firmly believed that the revised offer by BHP prejudiced shareholders, especially in relation to retaining the condition that Kumba Iron Ore and Amplats be demerged prior to the acquisition.
“It seems that Anglo’s board find the offer to undervalue the company but also find the proposed structure (to unbundle Amplats and Kumba) to be highly unappealing for Anglo’s shareholders,” Roy Topol, portfolio manager at Cratos Asset Management, said by phone.
“They state that those two companies make up 34% of the offer and thus Anglo shareholders would be prejudiced.”
BHP CEO Mike Henry said he was “disappointed that this second proposal has been rejected” as it represented “a 15% increase in the merger exchange ratio and increases Anglo American shareholders’ aggregate ownership in the combined group to 16.6% from 14.8% in BHP’s first” proposal.
Henry said BHP was also disappointed that the board of Anglo American had “chosen not to engage with BHP with respect to the revised proposal and the improved terms”, at a time the Australian company believed that “a combination of the two businesses would deliver significant value” for all shareholders.
Henry recently flew to South Africa to drum up support for the company’s bid.
During his brief visit to South Africa, Henry met key stakeholders, including government officials and fund managers among others, telling them that the company had good intentions with its acquisition bid for one of the country’s biggest and highly valued companies, knowledgeable sources said.
Under the revised proposal, BHP would assume the liabilities of Anglo American on completion, including costs associated with completing the demergers and any other transaction-related costs.
Market analyst Simon Brown, who had anticipated a higher revised offer from BHP after Anglo Platinum’s initial rejection last month, said BHP was not interested in the PGM and iron ore subsidiaries.
“PGMs they have no interest or experience in. Kumba likely because logistics makes it not great. Higher offer expected, or maybe a counter from Rio Tinto,” said Brown.
Anglo American said the structure of BHP’s revised offer was “unchanged from the proposal previously rejected” last month.
“The board has considered the latest proposal with its advisers and concluded that it continues to significantly undervalue Anglo American and its future prospects,” Anglo American said in a statement.
“In addition, the board has also taken into account the detailed feedback from its extensive engagement with Anglo American’s shareholders and stakeholders since the approach from BHP became public.”
The company emphasised that in addition to significantly undervaluing Anglo American, the board deemed the proposed structure under the bid to be unattractive for shareholders given the uncertainty and complexity inherent, and significant execution risks.
The requirement to pursue two contemporaneous demergers creates significant uncertainty, which falls disproportionately to Anglo American shareholders, the company said.
There have been concerns from South African stakeholders that the proposal to demerge Kumba and Amplats was a vote of no confidence in the country’s investment attractiveness.
BHP responded to this yesterday, saying that “South Africa will continue to benefit from Anglo Platinum and Kumba as major standalone South African mining companies and they would be better placed to reinvest” in their operations in the country.
BUSINESS REPORT