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Shares in BHP fell almost 5 percent on Friday as investors expressed concern that the world’s largest miner may have to pay more to secure its planned £31 billion bid for rival Anglo American.
The Australian miner’s all-stock bid for its smaller, UK-listed rival is expected to strengthen its position as one of the world’s largest copper and coal suppliers. BHP has said it wants a prior spin-off of Anglo’s South African iron ore and platinum divisions, which are independently listed, and will review Anglo’s other assets once the deal is complete.
BHP shares fell 4.5 percent in Australia on Friday as local investors said they were concerned about the complexity of the plan and whether the company would have to significantly increase its offer to complete the deal. News of the offering broke on Thursday as Australian markets were closed for a holiday.
Some large Anglo-American shareholders said BHP’s offer undervalued the target company. “BHP is paying more than it did in its first approach, so I expect Anglo shareholders will not be disappointed,” said one investor, who did not want to be named.
A mining sector banker said the complexity of the proposed deal, as well as significant political and antitrust risk, meant there would be uncertainty about BHP and Anglo American shares for some time. “There is a lot of water [still to go] under the bridge,” he said.
BHP is Australia’s largest company by market capitalization and the selloff contributed to the overall S&P/ASX 200 index falling 1.4 percent.
Kaan Peker, an analyst at RBC Capital Markets, said the initial offer appeared opportunistic given the weakness in Anglo American’s share price. “A cheaper offer may be required,” he said.
The move to Anglo represents the latest attempt by Melbourne-based BHP, known colloquially in its home market as “The Big Australian,” to reshape the global mining industry.
Under Mike Henry, the Canadian company veteran who was named chief executive four years ago, BHP has refocused its business on so-called “forward-looking” minerals such as copper, potash and iron ore, while divesting itself of oil and gas exploration assets.
A drive to increase its copper exposure sparked its $6.4 billion takeover of South Australia’s Oz Minerals last year.
Anglo represents a much greater risk to BHP and the proposed deal has been compared to its 2001 merger with Billiton, a London-listed South African mining company.
This deal added more metals, including aluminum and manganese, to BHP’s portfolio. It was effectively dissolved in 2015 when BHP spun off most of Billiton’s assets into a new company called South32.
Another attempt by BHP to transform the sector was its bid to buy rival Rio Tinto in 2007. This would have created a dominant player in the global iron ore, coal, aluminum and copper markets, but the offer was rejected.
There have been smaller deals since then, with BHP focusing more on improving the productivity of its operations and selling assets that did not fit its commodity prospects.
Peker said BHP must justify any deal on operational, strategic and synergy benefits. “Acquiring a competitor for a control premium alone is no longer as pleasant,” he said, citing the destruction of value caused by previous deals in the industry.