(Bloomberg) — The world’s largest mining company, BHP Group Ltd., has attempted a takeover of rival Anglo American Plc, a move that could trigger the biggest shakeup in the industry in more than a decade.
Most read by Bloomberg
Anglo American, which has a market value of 27 billion pounds ($34 billion), said late Wednesday it had received an unsolicited proposal for an all-stock merger after Bloomberg reported that BHP was considering a possible offer. It added that BHP’s move was contingent on Anglo first spinning off its South African platinum and iron ore units.
If successful, the deal would mark a return to large-scale deals for BHP, which has revived its appetite for transformative acquisitions in recent years under Chief Executive Officer Mike Henry. A merger with Anglo would create the world’s largest copper mining company ahead of demand from the new energy sectors, and BHP’s move could deter other suitors looking to increase production.
“If BHP does indeed pursue this deal, we would be surprised if no other bidders emerged,” Jefferies LLC analysts led by Christopher LaFemina said in an email note. An offer valuing Anglo at $42.6 billion – a 28% premium to its current share price – could result in a deal “across the finish line”, they said.
Over the last year, Anglo’s shares have underperformed their peers, including the Anglo-Australian heavyweight. BHP, which operates in London and Sydney, has a market value of around $149 billion.
Anglo American has long been viewed as a potential target among the largest mining companies, particularly because it owns large South American copper operations at a time when most of the industry is seeking to increase reserves and production. However, applicants were deterred by the complex structure and raw material mix, and in particular by the strong South African bias.
BHP produced around 1.2 million tonnes of copper on an equity basis in 2023, while Anglo’s production was 826,000 tonnes. That would give the combined group a share of about 10% of global mining supply. Jefferies said antitrust issues would “likely pose a problem” for the deal because governments view copper as a strategic mineral.
Anglo suffered a series of major setbacks last year as prices for some of its key products collapsed and operational difficulties forced the company to slash its production targets – lowering its valuation and leaving the company vulnerable to potential bidders.
Its statement said its board was reviewing the proposal and there was no certainty that an offer would be made.
Read: Anglo American reports sharp decline in profits, cuts dividend
Great offers
A successful takeover would be the first mega-deal between the world’s largest diversified mining companies in over a decade. BHP and its biggest rivals have been on the sidelines for years after a series of disastrous transactions but have braced for the prospect of a deal after reassuring investors they had learned from past mistakes.
“We would need to see the price that BHP had in mind to get a better picture,” Adrian Prendergast, senior analyst at Morgans Financial Ltd., said in an emailed note. A takeover of Anglo would be “significant but not transformative” for BHP given the size of the target, he said.
BHP bought copper producer OZ Minerals Ltd last year. for around $6.4 billion as its first major purchase in years, but has otherwise focused on selling assets such as oil, gas and coal.
The clear temptation here would be Anglo’s South American copper business, which has long been eyed by larger industry players – although the company has suffered recent setbacks and had to lower its copper production forecasts.
It is also possible that Anglo’s proposal could now prompt others to make a move. Second-largest miner Rio Tinto Group has also invested in copper production, while Glencore Plc made an unsuccessful bid for Teck Resources Ltd last year. which had a coveted copper business, before ultimately striking a deal for the Canadian company’s coal assets.
Read: BHP whets appetite for deals with biggest rivals in sight
Anglo’s valuation may make it more attractive, but it remains an extremely complicated business. The company owns controlling interests in two mining companies listed in South Africa – Anglo American Platinum Ltd. and Kumba Iron Ore Ltd. – and is the majority owner of the diamond mining company De Beers. It also has a long and complicated relationship with South Africa, where the state pension fund manager is its largest shareholder.
BHP’s proposal was to first hand over Anglo’s shares in the two South African companies to the smaller company’s investors before proceeding with the takeover, Anglo said. The two parts of the proposal are “interconditional,” it said.
Anglo’s other businesses include copper, nickel, steel coal and Brazilian iron ore, as well as the legendary De Beers business.
Both companies are also investing in new fertilizer businesses – BHP is building a huge potash mine in Canada, while Anglo is developing a polyhalite mine on the east coast of England.
– With support from Martin Ritchie.
(Updates with charts)
Most read by Bloomberg Businessweek
©2024 Bloomberg LP