Anglo, BHP fail to make progress as deadline approaches

ANGLO American and BHP were struggling to reach agreement on a possible combination of the two companies with talks stuck on possible deal structure changes.

Bloomberg News and the Financial Times both reported on Tuesday night that Anglo continued to insist BHP’s plan to first unbundle Amplats and Kumba Iron Ore was too risky for its shareholders.

If Anglo were first to exit Amplats and Kumba it could leave the newly independent Johannesburg-listed companies to carry the cost of any concessions imposed by South Africa, reducing their value and ultimately penalising the current Anglo investors who would receive the shares in the spinoffs.

BHP has until 5pm London on Wednesday to commit to an offer, after Anglo agreed to extend a previous cut-off to allow for discussions.

The situation remains fluid and could change at any point, said Bloomberg News in its report. But with time running out, BHP will likely need another extension to the UK regulatory deadline to keep its bid alive, it said. As things stand, there’s no guarantee that Anglo will make that request, Bloomberg added citing people close to the talks.

“Unless BHP has shown it is willing to compromise on the structure, I don’t see how Anglo’s board can recommend this offer,” said the Financial Times citing one person close to Anglo American. 

A BHP source told the newspaper: “What’s interesting here is Anglo hasn’t come out and said there is a fatal flaw to this transaction”.

Wednesday’s deadline, which was selected by Anglo, coincides with South Africa’s national election, adding an extra layer of political complexity, said the Financial Times. The newspaper contacted mines and energy minister Gwede Mantashe, who declined to comment.

“On balance, we believe the chance is that BHP bid fails, but it’s on a knife edge,” said Berenberg analyst, Richard Hatch in a report last week.

Were Anglo’s board to recommend BHP’s next offer – viewed now as more likely by New York bank Jefferies – there is still the chance of interloper participation. Who else might step in, the bank’s analysts asked?

“We have long believed that Glencore and Anglo make a compelling strategic combination, and it would be a surprise to us if BHP acquires Anglo without Glencore at least attempting to get involved in some way, shape or form,” it said.