Anglo rejects improved all-share takeover proposal from BHP

BHP increased its all-share takeover proposal for Anglo American by…

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BHP increased its all-share takeover proposal for Anglo American by offering 0.8132 shares for each Anglo share – an improvement that was today (May 13) rejected by Anglo.

“We are disappointed that this second proposal has been rejected,” said Mike Henry, CEO of BHP in a statement to the London Stock Exchange.

The second proposal was tabled with Anglo on May 7, therefore news of today’s rejection by Anglo could suggest the beginning of the UK-listed firm’s fight back.

So far, Anglo has kept its counsel on BHP’s approach save to say the proposal undervalued the firm and was too complex. Anglo is due to present at the Bank of American conference in Miami on Tuesday to be immediately followed by BHP.

BHP’s revised proposal represents a 15% increase in the merger exchange ratio and increases the proposed aggregate ownership of Anglo shareholders in the combined group to 16.6% compared to 14.8% in BHP’s first proposal on April 25.

BHP’s revised proposal values Anglo at £34bn or £27.53 per share including Anglo American Platinum (£4.86/share) and Kumba Iron Ore (£3.40/share) shares. As per BHP’s first proposal for Anglo, the Johannesburg-listed subsidaries would first be unbundled to shareholders.

Shares in Anglo dropped 1.72% in Johannesburg shortly after the announcement suggesting investors considered BHP’s to represent fair value. Analysts have said over the past two weeks that BHP would not progress a formal offer beyond £30/share.

Henry said the combination of Anglo – which would be offered two seats on BHP’s board in terms of the revised proposal – was “a strategic fit” citing “significant synergies”.

BHP now has until next Wednesday to decide if it wants to submit a formal offer. It may be heartened by comments attributed to Anglo’s South African shareholders.

The Guardian quoted Dawid Heyl, a fund manager at Ninety One, which owns 2.1% of Anglo, as saying that a deal along the lines proposed could be struck but the price would have to be substantially higher.

However, the unbundling of Amplats and Kumba could be a stumbling block where it still a factor in a formal bid. “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,” Heyl told the Guardian.

Karl Leinberger, the chief investment officer at Coronation Fund Managers, which owns 1.2% of Anglo, said that it would “definitely” consider a deal but BHP would have to pay more if it wanted to exclude the South African businesses.

It’s understood, however, that BHP is prepared to “walk away if it doesn’t stack up for our shareholders on the fundamentals,” a source says. “This is not a must do.”

Bloomberg News reported over the weekend that Anglo investors had urged the group to set about defending its rejection of BHP.

Analysts believe the group will talk about the long-term ‘value proposition’ of its strategy which will nonetheless include the kind of restructuring BHP’s envisages. De Beers, a unit in Anglo BHP said it would review, could be sold by Anglo for instance.

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