🔒 Anglo American has given BHP the blueprint for a takeover: Javier Blas

In defending against a takeover by BHP Group Ltd., Anglo American Plc has inadvertently provided a roadmap for a successful bid. Anglo’s radical restructuring plan, which includes exiting diamond, platinum, nickel, and steelmaking mining, mirrors much of BHP’s strategy. However, BHP’s offer to shoulder divestiture costs and promise of significant synergies may sway Anglo’s shareholders. The takeover battle hinges on BHP’s willingness to increase its bid.

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By Javier Blas

In trying to mount a defense against takeover interest, Anglo American Plc has also given its much larger rival BHP Group Ltd. a blueprint on how to launch a successful bid. ___STEADY_PAYWALL___

If it wants the prize, BHP needs to sweeten its offer and fine-tune its initial proposal. But the game is up: Either Anglo will break up itself to remain independent, or, after just over 100 years of operation, it will be taken over. The status quo won’t hold.

On Tuesday, Anglo, which is listed in London, made a last-ditch attempt to fend off its rival, announcing its biggest shakeup in a quarter a of century. The company told investors it’s exiting diamond, platinum, nickel and steelmaking mining. Plus, the restructuring will all but shelve construction of a cash-guzzling fertilizer mine in the UK for at least two years, if not forever. By 2030, all the company’s underlying earnings will come just from copper and iron ore. “We are reshaping quite radically,” Chief Executive Officer Duncan Wanblad said.

The plan is indeed radical — but it mirrors the outlines of what BHP has proposed already, a structure Anglo has flatly rejected. Granted, there are differences about which assets go or stay, the complexity and costs and who bears the risk of the overhaul . The version presented by Wanblad also better navigates South Africa’s politically charged environment, retaining significant assets in the country. 

Fundamentally, however, Anglo has conceded — even if it strongly denies it — that most of the big-picture strategy that BHP has tabled makes sense. Amid a takeover battle, accepting the enemy’s mapping speaks volumes about your own weaknesses — even if, as Wanblad said, one insists that the strategies are “completely different in terms of time and complexity.” Both are important, but substance is even more crucial.

Wanblad is right to emphasize that his road map is is less risky for shareholders because it needs fewer regulatory approvals. Under the BHP proposal, they bear all the risk — and that equates money. But Wanblad left his investors in the dark on other important details: He had no answers on the tax cost of the divestiture of its platinum business and was mum when asked about likely writedowns on its fertilizer business. Details about cost savings were missing too, and the debt targets merely repeated what was previously announced .

Wanblad also didn’t sound very reassuring when pushed about  anticipated difficulties, saying management was “reasonably confident” it can deliver on the plan, but warned that “it is going to take in the order of 18-24 months.” Anglo American shares dropped almost 3%. 

Now BHP can largely copy and paste Anglo’s new strategy, give or take a few tweaks.  In its initial proposal, BHP wanted to dump its competitor’s South African iron ore business. Adopting the new Anglo strategy, it should instead keep it. That could smooth the disquiet in South Africa. In turn, BHP’s idea of retaining the steelmaking-coal business is superior to Anglo’s recommendation of selling it. But the bulk of the new strategy — selling diamond unit De Beers, separating platinum and stopping the fertilizer mine — can be kept intact.

So, as nearly always, the battle comes down to money and capability.

Let’s tackle the latter first. Wanblad is an astute manager who unfortunately inherited a really bad hand. I believe he could navigate South Africa’s sensitive political waters better than anyone at BHP. Under pressure, he’s trying to repair Anglo, perhaps too late. BHP’s CEO Mike Henry can execute the complex merger-and-divestment strategy on time and on the money. In today’s mining, size is an advantage, and that favors Henry.  

Anglo shareholders have two options. They can wait for Wanblad’s plan to bear fruit, probably not earlier than 2025. Anglo American’s own proposal carries significant risks, notably negligible guidance on the fertilizer business beyond 2026.

Or these investors can determine what could be extracted from BHP. The Sidney-listed miner is offering two things that Wanblad can’t match: First, it’s willing to shoulder any cost linked to the separation of the different businesses, including capital gains taxes in South Africa running up to $2 billion; second, it’s promising millions of dollars in synergies, particularly in iron ore and coal.

Ultimately, this comes down to the premium that BHP wants to pay — and in what form: all shares, as it has proposed until now, or a combination of shares and cash. On its last offer, tabled on Friday, the miner valued Anglo at £34 billion ($42.6 billion). On Tuesday, the market valued the company at £32 billion.

Henry has built a reputation as a conservative, disciplined M&A dealmaker. Surely he will want to convince everyone he’s not ready to increase his offer much more. Perhaps, but I suspect he’s bluffing: For BHP, which is worth about $150 billion, securing the Anglo American prize  and the prospect for its copper riches merits spending extra money — and that means a higher offer that includes a cash component. 

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