OZ Minerals to recommend BHP’s revised higher $9.6bn takeover offer
Copper miner OZ Minerals intends to recommend a sweetened all-cash offer from BHP, after the suitor upped its bid by more than $1bn.
OZ Minerals’ board has leveraged another $1.1bn out of BHP in exchange for recommending a friendly $9.6bn takeover offer, as the stand-off over BHP’s play for the South Australian miner finally ended.
It took a $3.25 a share bump to BHP’s August takeover bid to ensure OZ Minerals would put the takeover to its shareholders, with the mining giant saying on Friday its $28.25 offer was its “best and final”.
The sweetened bid represents a 49.3 per cent premium to OZ Minerals’ closing price of $18.92 per share on August 5, before the initial offer was announced.
OZ Minerals chair Rebecca McGrath told shareholders the new offer delivered “full and fair value” for OZ Minerals operating mines and growth pipeline, despite the hopes of some in the market that BHP could be pushed to the $30 mark.
While BHP could still bump its offer again if a competing proposal emerges, chief executive Mike Henry signalled there will be no reward if holdout shareholders blocs emerge on the OZ Minerals register.
“BHP’s proposal represents a highly compelling offer for OZ Minerals shareholders, providing certainty at a time of macroeconomic uncertainty and market volatility, and increasing risks for the industry,” he said.
In August OZ Minerals managing director Andrew Cole told reporters the company’s major institutional shareholders had “unanimously” backed the board’s decision to reject BHP’s initial $25 a share offer.
But BHP has since played a patient waiting game, amid repeated comments from Mr Henry that OZ Minerals would be “nice to have, not a must have”, and it is understood a significant shareholder block has since made it clear to the OZ Mineral board that they should not let BHP walk away if the company made an improved offer.
BHP returned to the negotiating table late last week, in the wake of a surge in the copper price on the back of China’s moves to relax its Covid-19 restrictions and offer support to its property industry – both moves seen as likely to spur demand for industrial metals such as copper.
That rally stalled this week as BHP and OZ thrashed out the details of the new deal, amid weak housing data in China and signs of improving copper supply.
Copper traded on the London Metals Exchange was worth $US8155 a tonne on Friday morning, down from $US8411 on November 11.
The improved bid gives BHP exclusive rights OZ Minerals data room for the next four weeks, with OZ Minerals agreeing it won’t shop itself around to rival bidders during the exclusivity period, or agree to discussions if a competing bid emerges anyway.
While no timetable for takeover was given on Friday, it appears likely BHP’s offer won’t be put to OZ Minerals shareholders until at least March, given the four week due diligence period and the fact that OZ Minerals will need to seek an independent expert report on the offer ahead of any meeting of its shareholders.
“It is the board’s view that progressing the revised proposal, including providing BHP with access to due diligence, is in the best interests of OZ Minerals’ shareholders and other stakeholders,” Ms McGrath said on Friday.
The $28.25 price remains below the $30 a share expectation held by some analysts, but is broadly in line with the premium on offer in this month’s blockbuster bid for Origin Energy from Brookfield and MidOcean — pitched at a 50 per cent premium to the Origin share price ahead of the offer, and 57 per cent ahead of its 30-day trading average.
Under the terms of the agreement between the two companies, OZ will be allowed to pay a dividend to shareholders ahead of the close of any translation, to use up its existing franking credit balance — but the BHP offer will be reduced by the value of the dividend payout if that occurs.
The acquisition of OZ Minerals will add the company’s Prominent Hill and Carrapateena mines in South Australia to BHP’s existing Olympic Dam mine, which the mining giant acquired in 2005 through the $US7.3bn acquisition of Western Mining in 2005.
It also means OZ Minerals West Musgrave copper and nickel project in WA will return to BHP’s hands, potentially adding a valuable feed to BHP’s Nickel West operations — also acquired in the Western Mining takeover.
But the deal also marks a departure for BHP from its avowed strategy of only buying and operating so-called tier one assets.
OZ Minerals plans to be producing 250,000 tonnes of copper a year later this decade, with about 200,000 tonnes coming from its South Australian mines. OZ Minerals produced about 125,000 tonnes of copper in 2021.
BHP’s total copper production last financial year was 1.57 million tonnes, with Olympic Dam producing 138,400 tonnes.
BHP said the acquisition “could unlock potential operational synergies due to the proximity of OZL’s Carrapateena and Prominent Hill operations with BHP’s existing Olympic Dam asset and Oak Dam development resource”.
But Oak Dam was discovered in 2018 and BHP is still to lay out any clear timeline for its development and, despite repeated attempts by BHP over the last few decades, BHP is also still to lay out a clear path to making the most of Olympic Dam’s giant underground resource.
OZ Minerals shares closed up $1.04, or 4 per cent at $27.34 on Friday, with BHP up 14c, or 0.3 per cent, to $43.94.