BHP’s insistence that Anglo American shed its South African assets remains the key sticking point to any takeover deal, but Anglo’s 1800-strong corporate office in the country - and even the fate of a 320-year-old winery - will also play a major role in any deal.
While the Anglo board appears to have nailed its colours to the mast on the issue of the deal’s structure, in reality there seems to be some wiggle room. Look past the apparently definitive rejection of BHP’s insistence that Anglo shed its South African iron ore and platinum assets, and the words “material value leakage” shine through.
BHP’s latest offer values Anglo’s stake in Amplats at £5.40 a share, and £4.23 for Kumba shares.
Anglo is no longer arguing that BHP’s £21.48 valuation of its other assets is below par, but is certainly implying the need for a bump in the valuation of Kumba and Amplats if the mining giant insists on their divestment at the same time as it wins control of Anglo.
BHP’s argument is relatively simple - Anglo has previously spun out its South African coal assets into Thungela Resources in 2021, sold three platinum mines in the country to Sibanye Gold in 2015, and plans to exit Amplats anyway as part of its own radical restructuring plan.
BHP wants Anglo shareholders to vote on the divestment of Amplats and Kumba at the same time as its acquisition of the remainder of the company - and rightfully points to the fact that Anglo shareholders would receive only 17.6 per cent of the Kumba and Amplats shares if it ran an in specie distribution after the close of a takeover, as it would have to distribute those shares across its entire global shareholder base.
Anglo, in turn, argues that BHP has badly underestimated the complexity of divesting its shareholdings in the two companies which, according to chairman Stuart Chambers, carries the risk of “material value leakage to be disproportionately suffered by Anglo American’s shareholders”.
The key to the issue is South Africa’s regulatory structure, established partly to stem the flight of big companies in the post-apartheid regime.
Australian takeovers are relatively simple by comparison - competition concerns can loom large, and the Foreign Investment Review Board process can be lengthy and secretive but is generally predictable and well-understood in the local market.
But in South Africa, more parts of government will want a say. In fairness, BHP will face more hurdles from a competition perspective if it does not unbundle Kumba from the deal. The iron ore operation’s tonnage, along with that of Anglo’s Minas Rio mines in Brazil, would likely take BHP close to Rio Tinto’s total iron ore output.
But despite being headquartered in London, Anglo is a South African tax resident, so any deal would be scrutinised by the country’s tax authorities.
South Africa’s black economic empowerment policies could be be triggered by any change of control in Anglo, Amplats and Kumba, with the government likely to be in a position to ask for bigger portion of black ownership in the South African operations - either through an equity selldown or employee share schemes - as a result, potentially carving out some of the value in the two listed businesses.
On top of that South Africa’s public interest tests, run through the country’s powerful trade and finance ministry, have levied a hefty price in previous major transactions.
Heineken’s €US2.4bn takeover of South Africa’s Distell Group in 2023 took 18 months to approve, and came with the requirements banning the retrenchment of manufacturing workers, the establishment of an employee share scheme and board positions for workers, as well as the establishment of a €500m investment plan.
PepsiCo’s $US1.7bn takeover of Pioneer Foods in 2020 was only agreed after Pepsi agreed to forgo “merger-related” redundancies for five years, plus a R1.6bn ($130m) employee share scheme, and a R5.5bn growth plan for its South African operations over the same period.
It is in this context that Anglo’s 1800 corporate office workers in South Africa will loom large, outside of the divestment of Kumba and Amplats. BHP is arguing that freeing the two companies will allow reinvestment of the cash they generate back into the country, rather than into South American copper mines and a UK potash operation.
But the fate of those workers, and the shared services they provide to Anglo’s global operations, will likely be a key negotiation point with the South African government before it agrees to a BHP takeover of Anglo.
And then there are smaller, but symbolic, Anglo assets. The standout is the 320-year-old Vergelegen winery near Cape Town.
While it has long historic importance in the country’s colonial past, the winery also played a key role in South Africa’s modern history as the site of the first meeting of the African National Congress’s executive with Nelson Mandela in 1990, after his release from prison, and where the ANC - at the invitation of Anglo, which bought the winery only three years before - prepared for negotiations for the transition of power away from the apartheid regime.
The winery’s role in South Africa’s transition from apartheid remains a point of pride for Anglo. The company hosts a major dinner at Vergelegen during Cape Town’s Indaba mining conference each year and former chief executive Mark Cutifani used to make a point of ensuring foreign reporters attending the dinner toured the wing devoted to its history.
Vergelegen is a relatively small asset in Anglo’s portfolio, but carries a symbolic weight that adds to Anglo’s position as a national champion of the South African resources sector, notwithstanding the fact that Anglo is now headquartered in the UK.
BHP is more than familiar with the conditions imposed by governments when there’s a risk to the status of national champion companies during mergers. The company is still subject to some of the original conditions imposed by then federal treasurer Peter Costello in 2001 over its merger with Billiton.
Those rules were significantly relaxed by Josh Frydenberg in 2022 when BHP ditched its dual-listed structure, but still require the company to maintain its headquarters in Australia, hold a majority of board meetings locally each year, and require chief executive Mike Henry to live in the country.
South Africa will be no less keen to protect its national champions. That is not to say that a deal can’t be done, but Anglo clearly thinks that is worth more money than BHP has yet put on the table.
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