BHP Considers Improved Offer for Anglo American After $39 Billion Proposal Rejected

BHP CEO Mike Henry is considering an improved offer for Anglo American after the company's initial $39 billion proposal was rejected. The separation of Anglo's South African assets could incur a $2 billion capital gains tax, adding complexity to the potential deal.

Anglo-American chairman Stuart Chambers has not ruled out selling the company to a competitor, stating that they would address any potential bid when it arises. The chairman's comment came after Anglo American's board formally rejected BHP's unsolicited $60 billion takeover play just days earlier.

BHP has proposed that Anglo sell its shares in units Anglo Platinum, Amplats, and Kumba Iron Ore as an option to exit the South African assets it doesn't want to be included in the deal. However, Anglo investors are concerned that they stand to lose heavily by holding shares in these South African subsidiaries, as the separation could incur a significant capital gains tax.

Why this matters: The proposed takeover would create the world's largest copper producer, as Anglo-American has significant copper assets in Chile and Peru. However, the deal faces regulatory hurdles and challenges related to the separation of Anglo's South African assets.

Meanwhile, activist investor Elliott Management has quietly built a $1 billion stake in Anglo American, adding pressure to the mining giant after it became the target of BHP's takeover bid. BHP has until May 22 to submit a binding offer, and investors anticipate the company to sweeten its bid.

The proposed takeover is seen as a vote of confidence in the future of copper, which is essential for the energy transition. "The expectation is that BHP may boost its offer or that other buyers for Anglo American or parts of its diversified portfolio may emerge," according to analysts.

The deal would also create a dominant player in metallurgical coal, which is used primarily to make steel. However, this may attract scrutiny from regulators, especially in countries like Japan that source a large portion of their coal from Australia.

Anglo-American's financial condition and poor performance over the past few years have provided the opportunity for BHP's "opportunistic" bid. Anglo's attributable profits have crashed, it has negative free cash flows, and its net debt has ballooned, compelling the company to embark on a major cost-cutting and capital conservation program.

As BHP weighs its next move, analysts and traders suggest that any successful takeover would need to be pitched at more than 30.37 pounds per share, a higher price than BHP's initial offer.

Key Takeaways

• BHP considering an improved offer for Anglo-American after the initial $39B proposal rejected
• Anglo American open to selling to competitors, but concerned over $2B capital gains tax
• The proposed takeover would create the world's largest copper producer but faces regulatory hurdles
• Activist investor Elliott Management has built a $1B stake, adding pressure on Anglo-American
• A successful takeover bid likely needs to be over 30.37 pounds per share, higher than the initial offer