Will BHP seal the deal on Anglo American takeover?

Investors have reined in their bets on a BHP takeover of Anglo American as an extended deadline on the deal draws near.

The FTSE 100 copper miner rejected a third £39bn bid from its Aussie-listed rival last week but the two parties extended talks until 5pm tomorrow in the hope of thrashing out a successful deal.

While BHP’s latest bid marked a £4bn uplift from its previous rejected offer, it retained a condition that Anglo carve off its South African Kumba operation, which has triggered pushback from the firm and the South African government, its largest shareholder.

BHP’s unwillingness to budge on the condition has proved a sticking point in any talks. Anglo rejected the latest offer as overly “complex” but extended a put-up or shut-up deadline until 5pm tomorrow and agreed to sit down for discussions with the company.

The initial offers sent shares in Anglo rocketing but the value of the company has fallen around five per cent in the past seven days, suggesting that hopes of a deal among investors may be fading.

“The deal success now boils down to whether BHP can mitigate the risk of the proposed structure for Anglo American shareholders by the 29th May,” analysts at Liberum said in a note to clients on Friday.

While BHP has already offered to bear the brunt of the demerger costs, including a possible $2bn of capital gains taxes and lost $12.5bn of market cap, Liberum analysts say shareholders will still have questions over the structure of the proposed.

“Can or will they underwrite/offer downside protections for the spin offs? Are Anglo’s board & management genuinely engaging or throwing a bone to the pro-deal shareholders? Deal more likely than it was, but still too much of a stretch,” the Liberum note added.

Meanwhile, Anglo has been canvassing support from shareholders for an alternative break-up plan that will see it offload its De Beers diamond business and carve off its platinum division Amplats and coal steel-making business.

“Support of the proposed break-up plan from certain major Anglo shareholders, which is the board’s proposed alternative to the sale, has no doubt given the board confidence in continuing to refuse the increased offers from BHP,” said Ashwin Pillay, a lawyer at Charles Russell Speechlys.

“Although the increase in price does undoubtedly make the deal more attractive to the Anglo board, the complexity of the terms which required the demerger of the iron and ore units in South Africa continue to be material sticking points,” Pillay added.

BHP has so far refused to drop the carve-off terms despite the structure being dismissed as “highly unattractive” by Anglo. 

Anglo shareholders PIC and L&G have backed the turnaround plans. Speaking with City A.M. last week, Ninetyone, another top ten Anglo shareholder, said the strategy could potentially open up the firm to a wave of rival bidders in the next year if seen through to completion.

Analysts at JP Morgan have also warned that a successful takeover of Anglo under BHP’s original terms could lead to a dent in the South African stock market and trigger outflows of $4.3bn from the country.