Anglo American’s $64bn BHP dealings well played say market observers

BHP may feel it has not choice but to once again lift its offer for Anglo American. Picture: William West, AFP.

BHP’s rebuff by Anglo American over its $64bn improved offer for its rival and its move to embark on its own break-up plan still leaves the option for the mining giant to still bid.

But now it may face more competition.

It has some questioning why it did not first sound out the target to assess what sort of offer would gain it due diligence.

The hope from the mining giant was that the improved offer, which values Anglo American shares at STG27.53 each compared to STG25.08 each in its last offer that was outed on ANZAC Day, would be that it would be enough to gain it due diligence or at least some engagement after its first approach was rejected.

But it’s been out manoeuvred by Anglo American.

History tells you that once a BHP process to buy an asset gains momentum, it is typically like a steam train that can’t be stopped, mainly due to the huge amount of work and process that has already gone into making the bid in the first place, as is the case with the latest Anglo American deal.

It may now have to pay more for the assets its wants.

Whether it was able to have some quiet conversations to assess the lay of the land before coming back with an improved offer that it believed would be accepted is unclear, but much of it would have depended on its relationship with Anglo American’s management.

Even if Anglo American shareholders were in favour of the buyout, there’s the South African government to think of, which goes a long way back with Anglo American and their relationship.

It may create regulatory opposition.

The South African government would like having a large miner in the country where it had its ear, but it would not have the same influence over BHP.

Meanwhile, the Australian government may make a condition of the deal that it keeps Nickel West in operation, despite the nickel price languishing.

One way to get the deal across the line was always thought to be by dropping all the terms and conditions.

BHP proposed returning the Anglo Platinum business to Anglo American shareholders for STG4.86 a share the Kumba Iron Ore business at STG3.40 a share.

The Anglo American diamond business in South Africa would also be sold.

But BHP is likely to be inflexible on its strategy, which involves keeping clear of South Africa, platinum metals and diamonds.

The only lever it can pull is price.

BHP has been looking at the target for years, and likely has already reorganised its portfolio to work around the introduction of the Anglo American business, with the Anglo American copper mines in South America being the prize for BHP.

And perhaps Anglo American is justified in its rebuttal, because the timing of the approach is highly opportunistic and it is in a weak position following downgrades.

So far it all seems well played by Anglo American, and could be inevitable that it eventually walks BHP up on price.

One way BHP’s plans are derailed are through a rival bidder, and Glencore continues to feature as the most likely prospect for that.