BHP to play the waiting game after Anglo American’s bold restructuring plan

Fold, double down, or stand pat: these are the choices facing BHP boss Mike Henry in the mining giant’s standoff with Anglo American.

Anglo shares fell close to 3 per cent in the days after the release of the new plan. Picture: Anglo American

Mike Henry should walk away from BHP’s value destroying offer for Anglo American.

Alternatively, Mike Henry should seize a generational opportunity to corner a bigger piece of the copper market before the commodity booms late in the decade by offering a knockout bid for Anglo.

Most likely, BHP will walk away right now, and spend the next six months stalking its quarry, watching to see how Anglo’s radical restructuring plan plays out.

Feedback from BHP’s retail shareholders – admittedly unscientific – seems to be trending very much to the first view. BHP’s dividend stream is welcome and they’d rather not see the company repeat the mistakes of the past.

And, while some institutional shareholders have expressed cautious support for BHP’s Anglo move, the money sitting on the sidelines of the action hasn’t quite been urging on Henry to capture his prize at any cost.

Part of the reason for that is the London market’s restrictive takeovers code, which set a hard time limit for BHP to put up or shut up through a formal bid by May 22. At the same time the code prevents BHP from selling its informal offer to shareholders, and Anglo from kicking off a full-throated takeover defence. That leaves institutional investors with very little to go on to make a call on the best option.

But the leak of the deal gave Anglo enough time to rush out its alternative plan while BHP was barred from pushing more than a basic case, with the company offering to tear itself apart in service of future returns from copper.

Anglo shares fell close to 3 per cent in the days after the release of the new plan – hardly a ringing endorsement.

Major Anglo shareholders have been pretty muted on the subject as they digest the plan. The tight timelines imposed by the UK code won’t help their decision-making process either.

And, as Henry made clear this week, it is Anglo’s shareholders that will need to step up if they want the UK-listed company to wring a better deal out of BHP.

BHP CEO Mike Henry. Picture: Arsineh Houspian

If Anglo chairman Stuart Chambers doesn’t pick up the phone to Ken Mackenzie over the weekend, BHP will walk away from the deal on May 22.

Then the onus is on Duncan Wanblad and his team to start to deliver on the promises made earlier this week.

That is not going to be easy. Anglo’s plan makes plenty of promises about the future value of a company focused on copper, with iron ore to generate cash in the short term, and potash as a medium-term growth option.

But it speaks very little about any short-term gains that would match the 50 per cent premium BHP’s latest offer put on Anglo shares, compared to their position before the offer went public.

Selling Anglo’s prized Queensland coal assets to pay down debt hardly offers much in the way of direct return to the company’s shareholders, and anything not applied to debt would likely go towards covering any tax bill from divesting its stake in the Amplats platinum business.

Anglo is already starting from behind on its pitch to investors. Henry and Wanblad both outlined their cases to major resources investors at the BofA Securities 2024 Global Metals, Mining & Steel Conference in Miami this week.

But Wanblad didn’t show up in person, delivering his talk via video link. And, where BHP’s team took more than 70 meetings to pitch their case at the event, Anglo is believed to have cancelled all of theirs.

It is still possible BHP will offer one last incremental bump before May 22, to try to secure limited due diligence talks – it would, at least, make the point to Anglo shareholders that every effort to open a discussion had been made.

But absent that, the real test for Anglo will come when BHP walks away. Even if the share price doesn’t immediately crater, Wanblad will need to deliver quickly on his restructuring promises to retain the faith of major shareholders.

The copper price will play a major role also. Copper is up more than 25 per cent in London so far this year, and more in the US. But that is partly driven by a short squeeze in the US market, and plenty of commodity strategists see the copper rally as a speculative run rather than being driven by fundamentals of demand and use, suggesting a return to reality may be looming.

BHP has demonstrated its willingness to be patient. Its first offer to OZ Minerals was also disclosed to the market within days. But BHP waited three months before returning with a better bid – enough time for OZ shareholders to digest the company’s alternative plan, and for BHP to deliver an offer that won it board support to do the necessary due diligence investigations.

Wanblad has promised he can deliver a radical restructuring plan for Anglo within 18 months, which few believe is possible. You’d assume he would need to make significant progress over the next six.

If not, BHP will still be sitting in the wings waiting for its next chance.

Originally published as BHP to play the waiting game after Anglo American’s bold restructuring plan