BHP Group (BHP) on Monday confirmed that made an improved offer to buy British mining peer Anglo American (AAL) last week, but said the offer was rejected by the Anglo board on Monday.
The new all-share offer from Melbourne-based BHP values London-based Anglo at £34 billion, up from £31.1 billion under its previous offer. BHP is offering 0.813 of a BHP share for each Anglo share, giving a current value to Anglo shares of £27.53 each, based on BHP's own price.
Anglo shares were down 0.5% to £27.60 each in London on Monday afternoon soon after the BHP announcement. They were down 2.2% to ZAR 627.22 in Johannesburg.
BHP has its primary listing in Sydney. In London, its shares were quoted at £22.95, up 0.1%.
The revised proposal represents a 15% improvement in the merger exchange ratio, BHP noted. It increases the holding that Anglo shareholders would have in the combined entity to 16.6% from 14.8% previously.
BHP has a market capitalisation of £116.07 billion, while Anglo's market cap is £36.90 billion.
BHP also offered Anglo two positions of the board of the combined company.
However, BHP said that Anglo rejected its revised proposal on Monday.
Commenting, BHP Chief Executive Officer Mike Henry said: “BHP put forward a revised proposal to the Anglo American board that we strongly believe would be a win-win for BHP and Anglo American shareholders.”
“We are disappointed that this second proposal has been rejected.”
As part of the proposed deal, BHP wants Anglo American to split off Anglo American Platinum and Kumba Iron Ore in South Africa.
South Africa's state-owned asset management firm Public Investment Corp last week signalled that it remains open-minded about BHP's bid for Anglo-American. PIC has a 7.0% stake in Anglo American, according to Morningstar.
What We think of the BHP-Anglo American Deal
Key Morningstar Metrics for Anglo American Stock
• Fair Value Estimate for AAL: £20.80
• Morningstar Star Rating: ★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High
Key Morningstar Metrics for BHP Stock
• Fair Value Estimate for BHP: £21.00
• Morningstar Star Rating: ★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Medium
In a note on the rejected deal, Morningstar’s equity analyst Jon Mills writes:
"No-moat BHP has lobbed an increased proposal to buy no-moat Anglo American in an all-share transaction via a scheme of arrangement. Under the updated proposal, Anglo American shareholders would receive 0.8132 BHP shares for each Anglo American share they hold, 15% higher than they would have received under the original proposal that Anglo rejected.
"However, Anglo also rejected BHP’s updated proposal. All other conditions of the proposal remain the same, including being conditional on Anglo American first demerging and distributing its 78.6% shareholding in Anglo American Platinum, its platinum group metals business, and 69.7% shareholding in Kumba Iron Ore to its shareholders.
"BHP’s increased proposal is an 11% premium to our base-case fair value estimate for Anglo American of £20.80 per share. However, if a deal is to be done, it will likely require an even higher offer from BHP or another suitor. BHP is required to either announce a firm intention to make an offer or that it won’t by May 22, 2024, under the United Kingdom's takeover and mergers code. While the number of potential alternative suitors with the size and balance sheet to bid is limited, there is also the possibility that a competing bid will emerge, perhaps from no-moat Rio Tinto, Vale, or Glencore.
"We think there is roughly a 50% chance that BHP lobs a higher proposal by next week’s deadline, and we will update our fair value estimate for Anglo accordingly, by about 8% to £22.50. This assumes a 25% chance that BHP increases its proposal by another 5% and a 25% chance BHP increases it by another 10%. Given the dilution to BHP shareholders, we also reduce our fair value estimate for BHP by 1% to AUD 40. However, if no transaction eventuates, all things equal, we would likely return to our current stand-alone fair value estimates for BHP and Anglo, respectively, of AUD 40.50 and £20.80, respectively."
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