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Anglo American has rejected BHP’s £31bn offer to buy and break up the UK-listed miner, saying the proposal “significantly undervalues” the company and would be “highly unattractive” to its shareholders.
Australia-based BHP approached its smaller rival this month with an all-stock offer that would exclude Anglo American’s platinum and iron ore businesses in South Africa, which are independently listed.
BHP’s shares fell nearly 5 per cent on Friday amid investor concerns that the world’s biggest miner had undervalued Anglo and might have to pay more to complete the deal.
The drop in BHP’s share price means the transaction’s value is now lower than the initial £31bn quoted in the miner’s proposal.
“The BHP proposal is opportunistic and fails to value Anglo American’s prospects,” said Stuart Chambers, chair of Anglo American. “The proposed structure is also highly unattractive, creating substantial uncertainty and execution risk borne almost entirely by Anglo American, its shareholders and its other stakeholders.”
The Australian miner’s all-stock offer for its smaller rival is intended to boost its position as the world’s biggest copper and steelmaking coal supplier. As well as spinning off of Anglo’s South African iron ore and platinum division, BHP said it would review Anglo’s other assets.
Some large Anglo American shareholders said this week that BHP’s offer undervalued the target company. “BHP has form in paying more than their first approach, so I suspect Anglo’s shareholders will not be left disappointed,” said one investor who did not want to be named.
Anglo has been conducting a strategic review of assets, including its De Beers diamonds unit, platinum metals and metallurgical coal.
Several shareholders said that the BHP approach has piled pressure on Anglo to start selling or restructuring some of its weaker assets, to better reflect the value of its prized copper mines in Peru and Chile in its share price.
BHP did not immediately respond to a request for comment on Anglo’s rejection of its proposal.
A banker in the mining sector said the complexity of the proposed deal, as well as the political and antitrust risk it posed, meant the share prices of both companies would remain volatile for some time. “There is a lot of water [still to go] under the bridge,” he said.
Kaan Peker, an analyst with RBC Capital Markets, said the initial offer looked opportunistic given the weakness of Anglo American’s share price. “A sweeter deal may be required,” he said.
The move on Anglo represents the latest attempt by Melbourne-based BHP — known colloquially as “The Big Australian” in its home market — to reshape the global mining industry.
Under Mike Henry, the Canadian company veteran who was appointed as chief executive four years ago, BHP has refocused its business on what it calls “future-facing” minerals, including copper, potash and iron ore, while disposing of its oil and gas exploration assets.
The drive to increase its exposure to copper triggered last year’s $6.4bn acquisition of South Australia’s OZ Minerals.
Anglo represents a much larger risk for BHP, and the prospective deal has been compared to its merger with Billiton, a London-listed South African miner, in 2001. Another BHP attempt to transform the sector was its offer to buy rival Rio Tinto in 2007.
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