Anglo-BHP saga will take years to unfold – analyst

Any potential deal for the purchase of Anglo American will take years to conclude as there will likely be a bidding war for the miner, and if an offer is accepted, multiple regulatory processes will have to be followed around the world. 

This is feedback from research analyst at Private Clients by Old Mutual Wealth, Sameer Singh, who said a purchase of Anglo will attract additional integration expenses for at least a year after any deal is concluded. 

Singh’s comments come on the back of Anglo American saying late Wednesday that it had received an unsolicited all-share merger proposal from BHP Billiton. 

Anglo’s board rejected the proposed merger, saying the offer undervalues the miner and is unattractive to Anglo American’s shareholders. 

Anglo said the board had considered the proposal with its advisers and concluded that it significantly undervalues Anglo American and its future prospects.

“In addition, the proposal contemplates a structure which the board believes is highly unattractive for Anglo American’s shareholders, given the uncertainty and complexity inherent in the proposal and significant execution risks,” the miner said.

The proposal also required Anglo American to complete two separate demergers of its shareholdings in Anglo American Platinum and Kumba Iron Ore to Anglo American shareholders. 

The all-share offer and required demergers would be inter-conditional. “The board has therefore unanimously rejected the proposal.”

Singh said this is likely the beginning of a potential bidding war for Anglo American, with other suitors such as Rio Tinto or Glencore showing increased interest in the miner.

The rejected deal offered by BHP, with around a roughly 16% premium to the market price on 23 April 2024, remains around 36% off from our fair value for the company,” Singh said. 

This equates to an additional US$13bn to the current market value and leaves the door open to any other suitor to offer a better deal. 

To put this into perspective, BHP spends around $10 billion annually on capital expenditure. Buying Anglo American at a valuation of around $50 billion would equate to five years of capital expenditures.

Relative to the commodity reserves and resources that Anglo offers, and the time and money needed to recreate the same portfolio, Anglo American presents a bargain, Singh said. 

He also noted that the takeover process, if successful, would take time and attract additional integration expenses over at least a 12-month period. 

Furthermore, there are other considerations, particularly anti-trust for copper, and steel-making coal, and the likely separate listing or divestment of De Beers, the world’s largest diamond miner and marketer.