ANGLO American on Wednesday rejected a third takeover proposal from BHP but has left the door open for negotiation, extending the deadline for talks by a week to May 29.
BHP offered 0.8860 of its shares for each Anglo share which values Anglo at £29.34 per share on its undisturbed price (April 23). This represents a significant advance on BHP’s initial offer of around £25/share. At this higher level, BHP’s third proposal – submitted on May 20 – edges closer to the £30 to £31/share valuation analysts considered fair value.
However, Anglo kicked back BHP’s proposal because the deal structure still requires it to first demerge its shareholdings in the Johannesburg-listed firms Anglo American Platinum (Amplats) and Kumba Iron Ore.
Stuart Chambers, chairman of Anglo said in a statement to the London Stock Exchange today that despite “multiple engagements” with BHP the structure of its proposal “results in significant complexity, execution risks, an extended timeline to completion” and would result in “value leakage”.
Crucially, he did not criticise BHP’s offer on value and said negotiations could begin. Commenting on the structure of the offer, Chambers said: “the board is willing to continue to engage with BHP and its advisers on this topic”.
The ‘put up and shut up’ deadline had been extended by a week which had been consented to by London’s Takeovers Panel, he said.
BHP said in a statement its third proposal represented its last for Anglo in line with its “capital allocation framework” and its “view of the fundamental value of Anglo American and BHP”.
“This is a significant increase from our first proposal and would provide Anglo American shareholders with 17.8% of a combined BHP and Anglo American,” said Mike Henry, CEO of BHP in a statement.
While the proposal was ‘final’, BHP would be willing to increase or improve the share ratio if Anglo’s board agreed to recommend a higher bid or if a competing bid for Anglo was registered by a third party.
Henry’s group sounded a note of confidence saying that it had “made progress” with Anglo on topics to do with the deal’s proposed structure. “We are hopeful that resolution will be reached in the next seven days,” BHP said.
“Final offers are never final and the door has been left open, but it’s difficult to see how to ‘make safe’ BHP’s proposed structure,” Ben Davis, an analyst for Liberum was quoted in the Financial Times as saying.
Prior to the announcements from BHP and Anglo, South Africa’s Public Investment Corporation, which owns about 8% in Anglo and 1% in BHP, said that a takeover of Anglo required “a meaningful revision” compensating shareholders for potential deal risks.
Referring to BHP’s second proposal, the corporation’s CEO Abel Sithole called for “future and perpetual participation” by South African shareholders in the merged company through the JSE and that Anglo’s role in society “should not be diminished” as a result of the BHP takeover.
Shares in Anglo gained 0.7% in London to trade at £26.67/share.
Bloomberg News cited advisory firm MKP Advisors as saying in a note today: “The conclusion here appears to be clear – this new proposal was rejected by Anglo on grounds of structure rather than price”.
