BHP can get Anglo deal over line with a lift in offer, Bernstein analysts say

Bernstein says a substantial improvement in BHP’s takeover offer is what’s needed to win support from Anglo shareholders.

An offer of £29 a share or about 0.97 BHP shares for each Anglo share would likely satisfy investors, Bernstein analysts say.

BHP could lift its takeover offer for Anglo American to a level valuing Anglo shares at £29 in order to get a deal over the line and win support from regulators, Bernstein analysts say.

Anglo on Friday knocked back the mining giant’s offer of 0.7097 BHP shares for each Anglo share on issue. That deal valued Anglo shares at £25.08 each at their relative trading price when it was made, including £4.86 in Anglo Platinum shares and £3.40 in Kumba shares.

However, Bernstein said a hefty increase was required to win support from Anglo shareholders. “We think BHP could raise its offer (again, early inquiries don’t need to start with a best and final offer), ideally to reach the equivalent of £29 a share (about 0.97 BHP shares for each Anglo share),” Bernstein said in a client note.

“This outcome satisfies Anglo American shareholders, and at the same time is good for Amplats and Kumba shareholders.”

The deal is conditional on the spin-out of Anglo American’s platinum and iron ore assets in South Africa to Anglo’s existing shareholders.

Anglo chairman Stuart Chambers released a statement to the London Stock Exchange late on Friday, Australian time, saying that BHP’s bid was opportunistic and failed to value Anglo’s assets fairly.

Anglo, set to hold its annual general meeting on Tuesday night Australian time, said BHP’s proposed structure, which would require Anglo to distribute its holdings in Amplats and Kumba iron to shareholders before signing a deal with BHP, would create “substantial uncertainty and execution risk borne almost entirely by Anglo American, its shareholders and its other stakeholders”.

Bernstein said a deal could still win support at the right price.

“Amplats and Kumba being majority-owned by Anglo American currently return free cash flow to Anglo American to be reallocated to other projects”, the research house said.

“A stand-alone Amplats and Kumba will be better able to control their destiny to allocate their capital and could re-rate to offset the benefit of being part of Anglo American. BHP shareholders would also benefit by getting 40 per cent attributable copper production growth, which offers long-term value and potential rerating due to higher composition of copper in the portfolio.”

Anglo American said its shareholders needed to take no action in relation to BHP’s proposed bid, and should wait for the mining giant to either vacate the field or make a firm offer – which it must do before May 22 under the UK’s takeovers rules.