- All-share deal values Anglo American at £31bn
- BHP says combination would add Anglo growth options to its cash generation
The world’s largest mining company BHP (BHP) has proposed a mega-merger with Anglo American (AAL), taking advantage of the fall in the smaller company’s valuation since early 2023. A combination of the historic miners would be the biggest deal in the industry since Glencore (GLEN) bought Xstrata 11 years ago.
Anglo’s copper, Brazilian iron ore and metallurgical assets are the prime targets for BHP, with the South African mines set to be split from the portfolio before the two companies would come together. BHP has already bulked up its copper portfolio with the $6bn (£4.8bn) buyout of OZ Minerals last year.
The terms offered to the Anglo board on 16 April were 0.7097 BHP shares for each Anglo share held, valuing the latter at £31bn. This represents a premium of around 14 per cent on Anglo’s closing price on Wednesday. Anglo’s shares climbed 13 per cent in reaction to the news on Wednesday morning.
BHP argued its offer of 2,508p a share was a 78 per cent premium on Anglo’s 90-day average share price when adjusted for the value of the Kumba Iron Ore and Anglo American Platinum subsidiaries, which are listed in South Africa.
Anglo saw its share price slide dramatically in December when it cut production guidance, while weaker platinum group metals (PGM) and diamond prices have knocked earnings. Liberum analyst Ben Davis said this week the company looked “overstretched” in capital spending terms, with questions over its dividend cover even with a lower payout level. Chief executive Duncan Wanblad has been under pressure since taking over in 2022, with company chair Stuart Chambers appearing at the company's 2023 results presentation to reiterate the board's support for Wanblad's strategy.
After the shares tumbled, Anglo was held up as a possible Glencore takeover target, although the Swiss mining and trading giant looks to have its hands full with the Teck Resources (CN:TECK.B) buyout and demerger plan. Analysts said further bidders could emerge, with Christopher LaFemina from Jefferies pointing to potential antitrust blocks to BHP's buyout given the combined size of the copper operations.
Mining valuations have climbed in recent weeks as investors reacted to stronger copper prices, while iron ore prices also saw a positive shift after tracking down all year.
BHP said a combination of the two portfolios would combine Anglo’s growth options with its own “higher margin cash generative assets and growth projects along with its larger free cash flows and stronger balance sheet”.
Berenberg analysts argued that the deal would “likely be margin dilutive for BHP”, given the weight of Anglo’s coal and iron ore businesses within its asset base, compared with its higher-margin Peruvian copper arms.The brokerage also argued there were “limited clear operational synergies” beyond cuts to corporate general and administrative expenses.
However, Anglo’s new Quellaveco copper mine in Peru is a top industry asset, despite the guidance cut, while the Woodsmith fertiliser project in North Yorkshire would add to BHP’s exposure to the space. It is building its own fertiliser mine in Canada.
But any buyout would see Anglo's historic portfolio pulled apart.
BHP would hand the South African PGM and iron ore units to Anglo shareholders before taking on the rest of the portfolio. The South African operations have struggled in the face of power cuts and other operational challenges, while prices for PGMs have tumbled in recent years. “Anglo American's other high quality operations including its diamond business would be subject to a strategic review post completion,” BHP added.
A tie-up would be a knock to the FTSE 100, given BHP said it would maintain its current listings after a merger. The miner dropped out of the FTSE 100 after shifting its primary listing to Australia in 2022. BHP has until 22 May to announce a firm intention to make an offer.
