Anglo American’s South Africa investors open to improved BHP bid

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Anglo American’s key South African shareholders are open to a takeover offer from BHP, despite government concerns that the miner’s £30bn-plus proposal is bad for Africa’s most industrialised economy.

The investors, which collectively hold more than 15 per cent of Anglo, told the Financial Times that BHP would need to sweeten its offer but they were not opposed in principle to an acquisition by the Australian group.

Their openness comes despite comments from mining minister Gwede Mantashe saying he was personally “negative” on the deal, which would spin off two South African subsidiaries.

London-listed Anglo has been woven into South Africa’s economy over its 107-year-old history and a takeover is a sensitive matter for the ruling African National Congress in an election year. The local competition regulator has warned that it will have the final say.

But David Masondo, South Africa’s deputy finance minister and chair of the Public Investment Corporation, which owns 8.4 per cent of Anglo, said the state-owned entity was yet to take a position based on the original proposal. “We’ll need to assess any offer, and assess the value it offers”, he said. But he added that the PIC would “look favourably on a higher offer.”

A drill operator prepares a blast hole from her operating cabin at the Sishen open cast mine, operated by Kumba Iron Ore
BHP is preparing a formal offer that could transform the producer of iron ore, coal and nickel into a mining supermajor, with Anglo’s coveted copper mines in Latin America as the main prize © Nadine Hutton/Bloomberg

Other local fund managers said the complexity of the deal structure — involving a spin-off of Anglo’s South African platinum and iron ore businesses, Amplats and Kumba — requires an even higher premium than if the whole business was being bought.

Dawid Heyl, a fund manager at Ninety One, which owns 2.1 per cent of Anglo, said that a deal along the lines proposed could be struck, but the price would have to be “substantially” higher.

“It would be easier, though, if BHP were to come back with a higher and simpler offer, which removes the conditionality of getting rid of Amplats and Kumba, which would make it trickier,” he said.

Karl Leinberger, chief investment officer at Coronation Fund Managers, which owns 1.2 per cent of Anglo, said that it would “definitely” consider a higher offer. But he cautioned that “if BHP only wants the rump of the business, for example, while leaving shareholders with the risk of the other assets, they’d have to pay more for it”.

UK-based M&G Investments, which owns 1.4 per cent of Anglo, said it too “will be supportive” if a proposed deal provides better value for its funds.

Anglo American corporate structure

The wrangling comes as BHP is preparing a formal offer that could transform the producer of iron ore, coal and nickel into a mining supermajor, with Anglo’s coveted copper mines in Latin America as the main prize.

The call for a better bid will also test BHP’s resolve to avoid overpaying after Anglo rejected an initial proposal last month that valued it at £25 per share as “highly unattractive” for its shareholders.

BHP is unlikely to radically increase its offer in its formal bid, which is due by May 22 under UK takeover rules, and the company has limited room to go higher, according to a person familiar with the company’s thinking. Anglo’s stock is currently trading at £26.57 per share.

The deal, initially valued at £31bn, would be the mining sector’s biggest on record if successful and is a bet on the importance of copper, which is predicted to suffer shortages as demand surges for renewables, power grids and electrical cars.

Bankers speculate that the bid could come ahead of an industry event in Miami next week, which would put the spotlight on Anglo’s chief executive Duncan Wanblad.

A formal BHP offer would increase the pressure on Anglo’s management to communicate its own plan to reshape the company and regain confidence of its investors.

Some Anglo shareholders are advocating for BHP to add a cash component to the offer. Andrew Snowdowne, a fund manager at Sanlam Investments, which owns 1 per cent of Anglo, said “the inclusion of a cash component in the offer should be positively received by the market, as it helps establish a minimum acquisition price in case BHP shares decline”.

BHP is not at the stage where it will add a cash component to its offer because of the large overlap in the two companies’ shareholder bases, although it could later if necessary, according to one person familiar with BHP’s thinking. The Australian miner is also resistant to including Anglo’s South African assets as part of its bid because of their misalignment with the company strategy, according to another person.

Anglo and BHP declined to comment.

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