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BHP has backed down on its return with another bid for rival miner Anglo American, according to people close to the company, with a rise in Anglo's share price making the deal too expensive for the Australian group.
London-listed Anglo launched a radical restructuring plan last year, in the midst of BHP's ultimately failed £39bn takeover bid, with plans to offload its coal, platinum and diamond businesses well received by investors.
Australia-based BHP is closely monitoring Anglo's progress, but believes the miner's shares have become too expensive to justify a new bid in the near term, according to three people familiar with the situation.
Anglo's share price has risen 40 per cent over the past 12 months, while BHP's share price has fallen 17 per cent in the same period on the back of falling iron ore prices and a weak Chinese property market.
“On the face of it, if BHP was bidding at what it thought was fair value, it is hard to see why it would be bidding higher now,” said George Cheveley, fund manager at investment manager Ninety One.
Anglo's ambitious restructuring plan would create a smaller company in terms of revenue, but a more focused company, with 54 percent of its revenue coming from copper and the rest from iron ore.
Anglo secured $4.9 billion for its coal assets in Australia last year, and is close to concluding a deal for its nickel mines in Brazil, with an announcement expected in the coming weeks. Its platinum business in South Africa is expected to be spun off this year, while the initial public offering of De Beers' diamond business could extend into next year, according to the company.
Anglo shares are trading about 3 per cent above the value of BHP's final all-share offer in May last year, according to calculations by Ben Davies, an analyst at RBC.
He said a renewal of the offer would be more likely after Anglo spins off its platinum business. “It will be a different company after these restructuring changes,” he said. “I feel like there's actually a bid premium in the stock today.”
The acquisition of Anglo's copper assets – particularly its stake in the Collahuasi mine in Chile and the Quellaveco copper mine in Peru – was a key part of the rationale for BHP's original bid for Anglo.
BHP said it is focusing on investing in its existing copper assets. But that's expensive: the company revealed last year that it needed to spend up to $10 billion to boost production at its Escondida copper mine in Chile.
The company recently completed a $3 billion purchase, with Lundin Mining, of the undeveloped Argentine copper asset, Filo del Sol.
“No deal is a ‘must do’ for BHP,” BHP CEO Mike Henry told the Financial Times in December.
He added that the company only seeks deals when it is the right commodity, the right long-lived asset, and when additional value can be unlocked through BHP ownership. “This is a very strict set of tests. There are not a lot of opportunities that meet all of these criteria,” he said.
Under the leadership of chief development officer Catherine Rau, who joined the company last April, BHP recently restructured its mergers and acquisitions team to consolidate certain functions globally, which had previously been divided along regional lines.
Under London's takeover rules, BHP is allowed to renew its bid for Anglo, if it wishes, after the six-month moratorium expires in late November.
Additional reporting by Susannah Savage
