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BHP-Anglo $49bn in jeopardy after deadline extension denied

Anglo American (LON: AAL) has rejected BHP’s (ASX: BHP) petition to extend takeover talks, arguing the world’s largest miner had failed to address its concerns over the “highly complex and unattractive structure” of the proposed deal. 

Anglo’s refusal comes only hours ahead of a 5pm UK time deadline for BHP to make a formal offer for the company or walk away from the proposed and “final” $49.2 billion (£38.6bn) offer.

Analysts believe Anglo’s denial of BHP’s requested deadline extension indicates the mega deal may be off. RBC said in a note to investors on Wednesday the proposed takeover structure is too complex for BHP to go hostile. 

“If BHP doesn’t launch a formal bid, it will be barred from buying Anglo for six months, unless a competing offer emerges,” they wrote.

The mining giants have been in talks since May 22, when Anglo rebuffed BHP’s third bid, with the parties focused on finding a deal structure satisfactory to both. 

BHP proposes a complicated transaction scheme, which has been the main bone of contention in the past five weeks of negotiations.

Anglo argues that the requirement to first spin off its majority stakes in two South African miners creates excessive risk for its own investors, who will end up holding those shares. The target company wants the suitor to either alter the structure of the proposal or compensate its shareholders for any loss of value as a result of the spinoffs.

BHP has said the risks associated with its takeover plan are “quantifiable and manageable”, adding that the costs of the proposed measures had already been incorporated into its offer.

All about copper

BHP’s main interest in targeting Anglo is its copper mines. An electrified world has become increasingly dependent on battery metals, particularly on copper, and BHP is, not surprisingly, eager to secure a leading position in this market. A tie-up would give the mining giant about 10% of global copper production at a time when copper prices are hitting record-highs. They have climbed about 23% so far this year.

A successful deal not only would reshape the mining industry, but would boost BHP’s presence in the world’s top copper producing countries, Chile and Peru. This would make it the world’s largest producer of the metal, far surpassing Codelco.

Anglo American, which traces its roots in South Africa to its founding 107 years ago, has come up with its own sweeping break up plan. This includes keeping its copper and iron ore assets, the two most profitable units, and reducing investments in its Woodsmith fertilizer project in northern England. Despite some investors urging Anglo to shelve or offload the project, the company is not ready to part ways with it. Instead, it plans to find strategic investors who can support the resumption of full-scale operations at the Woodsmith starting in 2026.

BHP’s concessions

BHP has committed to keeping Anglo’s office in Johannesburg fully staffed and listing BHP shares on the South African market. The company has also mentioned its willingness to contribute to a potential increase in South African employee ownership of the two units, if necessary. These measures would be upheld for a minimum of three years following the completion of the takeover. 

Chief executive Mike Henry has also expressed openness to negotiating a break fee in the event that regulatory authorities, including those in South Africa, block the potential deal.

Source: MINING.COM – Read More