BHP may have to up its bid to take OZ Minerals
OZ Minerals’ shares have closed above BHP’s $25 bid price as the market awaits the next move.
BHP’s $8.4bn bid for OZ Minerals has “put the company in play”, amid market expectations the mining giant will have to up its bid for the South Australian copper miner to get a deal across the line.
OZ Minerals shares closed comfortably above BHP’s $25 a share cash offer on Tuesday, posting a 7c gain to finish the day at $25.66, on strong volumes around 4.5 million shares as punters bank on an improved offer for the miner – either from a rival bidder, or from BHP itself.
Neither BHP nor OZ Minerals are believed to have hit the road to pitch their cases to shareholders yet, with both holding fire to gauge broader market reaction to the rejected offer.
BHP shares have also changed little since the company’s bid went public on Monday, with no sign of any major disapproval of the offer and the mining major closing only slightly down on Tuesday, off 30 to $38.82.
Jeffries analyst Mitch Ryan said in a client note that OZ Minerals rejection of the offer “puts it in play and encourages other suitors to step forward”.
“On our numbers, we forecast OZ will require a further $500m of additional capital in the coming 12 months to fund its growth trajectory inclusive of West Musgrave. As such, deals at either the company or asset level (specifically West Musgrave) may be appealing,” Mr Ryan said, adding that he believed BHP’s initial offer was underweight, however, putting a $28 a share price target on OZ Minerals shares.
While Jeffries is not alone in suggesting the BHP bid could flush out other suitors, BHP’s decision to ditch its dual-listed structure and London listing could give it a significant advantage over potential rivals – Glencore, Anglo American, and Teck Resources are among the names most commonly mooted – as it now no longer needs to seek approval for the deal from the federal government’s Foreign Investment Review Board.
Jeffries is not alone in suggesting BHP will need to kick up the price to win control of OZ.
Shaw and Partners mining analyst Peter O’Connor said on Tuesday the bid came as OZ was “trading cyclically low and the slightest hint of a copper price tailwind will take it substantially higher’’. Shaw and Partners has upped its share price target for OZ to $30 as a result of the BHP bid, saying chief executive Andrew Cole had revitalised the copper miner’s South Australian operation, where BHP had failed to make the most of its nearby Olympic Dam since the acquisition of Western Mining in 2005.
“OZ Minerals has emerged over the seven year journey since current CEO, Andrew Cole, took the reins (early 2015) into arguably one of the best copper companies in Australia and the world, if not the best,’’ Mr O’Connor said in a client note. “After 17 years of Olympic Dam stewardship clearly BHP is still struggling. Hence the tilt at OZL to pick up some of the DNA and mojo that has delivered 10 bagger returns for OZ shareholders.”
Shaw said the company’s assets were shunned by the likes of BHP when the stock was trading at just $3 per share in 2016.
“This merger and acquisition foray is far from over and … BHP will need to offer terms that reflect the valuation of OZ Minerals,’’ Shaw said.
Morgan Stanley pointed out that while the $25 offer price is significantly higher than OZ was trading at before the takeover bid was announced on Monday, it is below recent highs, with OZ shares changing hands for as much as $29.75 in the past 12 months. “OZ Minerals shareholders are likely to weigh the offer against their expectations of the long term copper price and recent peaks in the OZ share price, weighed by the volatile macro environment,’’ analysts at the investment bank said.
With the OZ board on Monday rejecting the $25 bid as too low, Morningstar says BHP now has the option to walk away, pitch the bid directly to OZ shareholders or increase the bid to get the board to engage.
“We think it is more likely that BHP raises its bid, as it did with Noront Resources in 2021, than pitch directly to OZ Minerals shareholders,’’ the broker said.
