Anglo should accept BHP’s offer, but only after screwing a little more out of the Big Australian

BHP chief executive Mike Henry. Picture: NCA NewsWire / Aaron Francis

The board of directors and shareholders of South African mining giant Anglo American should rush to accept BHP’s offer.

Santa Claus doesn’t come climbing down chimneys with a sack of gold that often in May.

And even less so, come – rather desperately – knocking no less than three times.

BHP started by offering 0.71 of its shares for every Anglo share. It’s now up to 0.886 with its so-called ‘final’ offer. That’s already a hefty 25 per cent lift.

Except it’s not – final, that is.

The ‘final’ offer comes with an asterisk. BHP will increase it if the Anglo board will recommend a higher offer.

So, when I say the Anglo board should rush to accept, I really mean rush to accept, after the board screws a little more out of BHP.

Maybe something around 0.92/0.93 of a BHP share.

BHP is desperate to get Anglo, after it’s so-called “forward-facing strategy” around nickel and its own OZ Minerals’ copper has hit some serious speed humps.

It’s also ‘long, very, very long China’, with its iron ore and coking coal.

And indeed, will go a tad longer with its Anglo buy, although it mostly wants Anglo’s non-China specific copper.

The equation for the Anglo board and shareholders is simple.

They get to swap 100 per cent of their ownership of a motley and very difficult collection of good, challenging and frankly quite bad mining assets for around 19-20 per cent of the biggest and best non-oil and gas resources group in the world.

A BHP which will be made that much better by the two major assets it acquires – a developing major copper mine in Peru and premium coking coal operations adjacent to its own Queensland mines.

In its move on Anglo, there’s a touch of BHP’s disastrous acquisition of – merger with – the very entrepreneurial (and I do not use that word as praise) British-South African Billiton group 23 years ago.

But only a touch: today’s BHP is very deliberately not making the blunders that the BHP of 2001 made.

The 2001 BHP gave away an extraordinary 42 per cent of the ongoing equity in the enlarged BHP to Billiton shareholders; today’s offer concedes only 18 (maybe 20) per cent.

And they gave it away for much inferior assets than what today’s BHP would buy. Indeed, they were so bad, that none of the bought mines ended up staying in BHP.

The 2001 BHP bought all of Billiton – including the rubbish; this offer specifically excludes the similar rubbish in Anglo.

Under BHP’s disciplined – if indeed desperate – offer, Anglo has to spin them off before, and separately to the merger.

They do include some arguably good assets, such as platinum.

There’s also other good assets which BHP would acquire, but would almost certainly sell, such as De Beers diamonds.

Both, because they sit outside BHP’s strategy future.

Back in 2001 BHP not only sought to acquire Billiton, but to ‘buy’ a CEO – Billiton’s boss, Brian Gilbertson. He lasted nine months.

There’s none of that nonsense this time. Chairman Ken MacKenzie and CEO Mike Henry stay firmly – and totally – in control.