Anglo American rejects $60bn BHP offer

UPDATED: BHP has confirmed mega-merger talks with UK-listed Anglo American, but a potential $60 billion deal which would build the world's biggest copper miner has been rejected by its target. 

The Big Australian confirmed to the ASX this morning that it made a proposal to the board of Anglo American on April 16, pitching a move which would see BHP acquire its mining rival in an all-scrip transaction. Anglo later rejected the bid, claiming it "significantly undervalued" the company. 

If a deal were to go ahead, it would create the world’s biggest copper miner, accounting for around 10 per cent of global output by combining Anglo’s four Chilean copper mines with BHP’s red metal interests.

BHP already operates two copper mines in Chile – the world’s largest at Escondida, and the Pampa Norte operation.

More copper is produced at Antamina in Peru and Olympic Dam in South Australia.

It would also complement BHP’s iron ore and metallurgical coal portfolios, adding iron ore operations in Brazil and met coal in Queensland.

But not all assets are part of the plan.

The move is subject to the takeover target divesting two majority owned subsidiaries – Anglo American Platinum (78.6 per cent Anglo) and Kumba Iron Ore (69.7 per cent) – to its shareholders directly.

Both the platinum and iron ore businesses have operations in South Africa, where the proposed divestment has reportedly triggered political concern weeks out from an election.

Under the terms of the proposal, Anglo American shareholders would receive 0.7097 BHP shares for each ordinary share held, and their directly proportionate stake in the platinum and iron ore businesses.

It values Ango shares at around £25.08 per share ($48.05) including the value of Anglo Platinum and Kumba, for a total value of £31.1 billion ($59.6 billion).

The offer represents a premium to the implied market value of Anglo’s unlisted assets of around 31 per cent, and a premium of around 78 per cent to the company’s volume-weighted 90-day trading price.

In a statement, BHP said the two businesses had obvious synergies, with Anglo bringing assets and long-term growth potential and BHP offering higher margin assets and a stronger balance sheet.

“The combined entity would have a leading portfolio of large, low-cost, long-life tier one assets focused on iron ore and metallurgical coal and future-facing commodities, including potash and copper,” it said.

“These would be expected to generate significant cashflows and the combined entity would have the financial capacity to support value-adding growth projects at the optimal time, while continuing BHP’s commitment to shareholder returns.”

Anglo's rejection of the offer came as a result of its vision for the copper market. The company claimed BHP's move was opportunistic and failed to value Anglo's prospects. 

"Anglo American is well positioned to create significant value from its portfolio of high quality assets that are well aligned with the energy transition and other major demand trends," Anglo chairman Stuart Chambers said in a statement to the London Stock Exchange.

"With copper representing 30% of Anglo American's total production, and with the benefit of well-sequenced and value-accretive growth options in copper and other structurally attractive products, the Board believes that Anglo American's shareholders stand to benefit from what we expect to be significant value appreciation as the full impact of those trends materialises."

The offer is non-binding and there is no certainty that a deal will be made.

BHP has until May 22 to put up a firm binding offer for the takeover target, in keeping with UK market rules. 

BHP shares fell 4.5 per cent in early trade this morning, to $43.19.