BHP Group (BHP) on Monday confirmed that made an improved offer to buy British mining peer Anglo American (AAL) last week, but said the offer was rejected by the Anglo board on Monday.
The new all-share offer from Melbourne-based BHP values London-based Anglo at £34 billion, up from £31.1 billion under its previous offer. BHP is offering 0.813 of a BHP share for each Anglo share, giving a current value to Anglo shares of £27.53 each, based on BHP’s own price.
Anglo shares were down 0.5% to £27.60 each in London on Monday afternoon soon after the BHP announcement. They were down 2.2% to ZAR 627.22 in Johannesburg.
BHP has its primary listing in Sydney. In London, its shares were quoted at £22.95, up 0.1%.
The revised proposal represents a 15% improvement in the merger exchange ratio, BHP noted. It increases the holding that Anglo shareholders would have in the combined entity to 16.6% from 14.8% previously.
BHP has a market capitalisation of £116.07 billion, while Anglo’s market cap is £36.90 billion.
BHP also offered Anglo two positions of the board of the combined company.
However, BHP said that Anglo rejected its revised proposal on Monday.
Commenting, BHP Chief Executive Officer Mike Henry said: “BHP put forward a revised proposal to the Anglo American board that we strongly believe would be a win-win for BHP and Anglo American shareholders.”
“We are disappointed that this second proposal has been rejected.”
As part of the proposed deal, BHP wants Anglo American to split off Anglo American Platinum and Kumba Iron Ore in South Africa.
South Africa’s state-owned asset management firm Public Investment Corp last week signalled that it remains open-minded about BHP’s bid for Anglo-American. PIC has a 7.0% stake in Anglo American, according to Morningstar.
What We think of the BHP-Anglo American Deal
Key Morningstar Metrics for Anglo American Stock
• Fair Value Estimate for AAL: £20.80
• Morningstar Star Rating: ★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High
Key Morningstar Metrics for BHP Stock
• Fair Value Estimate for BHP: £21.00
• Morningstar Star Rating: ★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Medium
When the initial transaction proposal was announced, Morningstar’s equity analyst Jon Mills said the deal would be roughly equal to Morningstar’s base-case fair value estimate for Anglo – but only gave the deal a 50% chance of being successful.
“We think Anglo is now in play, with its copper assets in Peru and Chile the main attraction to potential suitors also optimistic about its outlook. But the list of potential acquirers with the size and balance sheet capacity to bid is limited, and includes Rio Tinto, Vale, and perhaps Glencore,” he said in a note.
“Given Anglo’s share price has trailed BHP’s, Rio Tinto’s and Glencore’s recently, BHP’s proposal is opportunistic and we see some merit to the deal. The assets are mainly located in jurisdictions such as Chile, Peru, Brazil, and Australia, where BHP operates. For context, the cost to purchase Anglo excluding its PGMs business and Kumba is around 17% of BHP’s equity value. The enlarged BHP’s balance sheet is also strong, with pro forma net debt/trailing 12-month EBITDA of around 0.6.”
