BHP walks away from Anglo American takeover bid
The Australian giant has walked away from a six-week pursuit of Anglo American after failing to convince its rival to engage in further talks.
BHP has abandoned its $74bn takeover bid for Anglo American, with the Australian giant walking away in the final minutes of a six-week pursuit, after its rival rejected a request to extend the UK regulator deadline on Thursday morning.
In a statement to the UK stock exchange shortly before the market close in London on Wednesday, BHP chief executive Mike Henry said: “BHP will not be making a firm offer for Anglo American. BHP is committed to its Capital Allocation Framework and maintains a disciplined approach to mergers and acquisitions”.
He believed the BHP proposal for Anglo American was “a compelling opportunity” to effectively grow the pie of value for both sets of shareholders and was disappointed discussions could not have continued.
Mr Henry added: “We were unable to reach agreement with Anglo American on our specific views in respect of South African regulatory risk and cost and, despite seeking to engage constructively and numerous requests, we were not able to access from Anglo American key information required to formulate measures to address the excess risk they perceive.
“We remain of the view that our proposal was the most effective structure to deliver value for Anglo American shareholders, and we are confident that, working together with Anglo American, we could have obtained all required regulatory approvals, including in South Africa.’’
Anglo said it considered the BHP offer to be highly complex and unattractive.
BHP’s takeover was conditional on Anglo divesting its South African assets Kumba Iron Ore and Anglo American Platinum which Anglo believed would leave its shareholders exposed to changing government conditions.
Anglo’s board said in a statement it had held “extensive engagement” with its shareholders before unanimously concluding there was “no basis for a further extension”.
BHP’s latest offer had valued Anglo at around £38.6bn ($74bn). Shares of Anglo American fell 3 per cent at 4:40pm London time while BHP’s stock price rose 0.2 per cent.
Earlier on Wednesday Anglo had said it could not accept the structure of the BHP deal on offer and refused BHP’s request for an extension of talks, required to be submitted to the UK Takeover Panel before the market close.
BHP had earlier asked Anglo to extend negotiations for another week, as the mining giant tried to convince its smaller counterpart it could make a deal work.
But Anglo’s board on Wednesday night killed off any possibility of a friendly deal, saying it would not ask the UK Takeovers Panel for another week’s extension to negotiations – required under UK corporations rules.
BHP had said it would not make a firm offer without being offered reasonable due diligence into Anglo’s assets, and that it will not change the structure of its bid or increase the number of shares on offer.
Anglo said that BHP’s attempts to win its support for the divestment of its dominant stakes in Amplats and Kumba Iron, both listed on the South African market, had consisted of a “limited number of socioeconomic measures that were confined in scope, impact and duration and that BHP stated would support regulatory approvals”.
“This approach does not sufficiently address the fact that Anglo American’s shareholders would bear disproportionate execution and value risks and uncertainty over an extended period, nor does it consider that material conditions would likely be imposed in relation to both Anglo American Platinum and Kumba which would require the approvals of their respective board,” the company said in a statement.
BHP released a statement to the Australian market late on Wednesday, saying it had genuinely tried to address Anglo’s concerns about its deal structure, which would require Anglo to shed its South African platinum and iron ore interests ahead of any broader deal, including the offer of a “reverse break fee” to allay concerns within the Anglo board at the risks of the transaction falling on its own shareholders.
“BHP believes that the proposed measures it has put forward provide substantial risk protection for Anglo American shareholders and supplement the significant value uplift that Anglo American shareholders will receive from the potential combination,” the company said.
“BHP believes a further extension of the deadline is required to allow for further engagement on its proposal.”
BHP’s move to get back on the front foot was aimed at ramping up pressure on the Anglo board, and was pitched directly at joint Anglo and BHP shareholders the mining giant believes want to see a deal done.
On Wednesday BHP released for the first time details of the raft of measures it has proposed to allay the Anglo board’s concerns that its shareholders will carry the risk and costs of spinning out assets.
The mining giant believed the decision will highlight its concerns that Anglo’s board is using its criticism of BHP’s proposed deal structure as a regulatory defence, and has no real intention of negotiating a friendly takeover agreement.
Anglo rejected BHP’s latest sweetened $74bn offer a week ago, dropping complaints the offer undervalued its copper and coking coal assets, but saying its board had unanimously rejected the latest bid due to concerns its shareholders would wear all of the risks of spinning out its shareholdings in Amplats and Kumba Iron.
Anglo’s concerns centred around not just the distribution of its dominant shareholding position in both South African-listed companies, but also around the change of ultimate control that might trigger the need to negotiate with the South African government over public interest tests.
At stake was the fate of the 1800 workers in Anglo’s corporate offices in the country, as well as potential requirements for an increased shareholding in Amplats and Kumba for employees under the country’s black economic empowerment policy framework.
On Wednesday BHP said it had offered direct responses to Anglo’s concerns, including offering the South African government a three-year guarantee to maintain staffing levels in the country, sharing any costs of employee share schemes, and establishing a mining centre of excellence in the country to train mine workers and to conduct research and development for BHP’s global mining operations.
BHP’s public statements come as South Africans head to the polls in national elections that could see the ruling African National Congress forced into power sharing arrangements for the first time since the end of the former apartheid regime.
RBC Capital Markets analysts said on Wednesday that the BHP release should help mitigate concerns around the proposed structure held by Anglo shareholders, but RBC London-based analyst Marina Calero noted that BHP had not quantified the costs associated with its attempts to reach a peace deal with the Anglo board.
“We believe Anglo is unlikely to accept last week’s offer unless the structure changes or a higher compensation is offered,” she said in a client note.
“Last week’s final ratio offer of £29.34 a share is well above the top-range of what we see as being value accretive, and we estimate the revised final offer factors in synergies in excess of $US7bn, plus operational recovery and long-term growth projects (that may or may not eventuate) from Anglo’s key assets.
“In our view, there is too much project and synergy execution risk.”
