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BHP Group will not make a firm offer for Anglo American Plc by a Wednesday deadline, temporarily walking away from what would have been the largest mining deal in more than a decade.
Less than an hour before the 18:00 (SA time) deadline, BHP confirmed it had failed to reach an agreement and could not get the support of Anglo American’s board, so it would not proceed. As a result, BHP must now abandon the deal for at least six months.
The decision marks an abrupt end to a five-week battle between the two mining giants. Anglo American had repeatedly rejected BHP’s proposal to break up the 107-year-old company and then buy it, but last week agreed to extend the negotiation period by one week. The two sides failed to agree on the structure of a complex deal worth R900 billion for BHP, and despite a last-minute appeal by BHP, Anglo American said early on Wednesday it saw no reason to postpone the talks again.
If successful, the takeover would create a commodities giant that outpaces its closest rival and significantly boost BHP’s copper production at a time when mining companies and their investors are preparing for a prolonged period of tight metal supplies and higher prices.
BHP’s decision to walk away, rather than raise or change its bid, also reflects a new reality in the mining industry: The biggest producers are finally returning to dealmaking after years on the sidelines, but boards and management are wary of angering investors as they rebuild the company’s reputation after a series of disastrous and expensive acquisitions over the past decade.
Chief Executive Officer Duncan Wanblad is now under pressure to prove Anglo American can create more value for shareholders as a standalone company after unveiling a plan to overhaul the business earlier this month. Analysts and investors also say BHP or other rivals could still target Anglo American in the future, especially if the company successfully exits some of its less attractive businesses.
Anglo American shares fell 4% after BHP’s announcement, but remain well above their levels before Bloomberg News first reported the takeover interest. Prices of key commodities such as copper and iron ore have risen over the same period.
BHP first approached Anglo American in mid-April with a proposal that the smaller company divest its majority stakes in two listed South African miners and then buy the group’s remaining shares. Anglo American rejected the proposal and instead rushed out a plan to overhaul its business by exiting diamonds, platinum and coal, while slowing investment in a large fertilizer project in the UK.
Anglo American has long been seen as a potential target for its lucrative copper mines, but its complex structure and unusual mix of niche commodities have largely stymied suitors. A series of setbacks late last year sent its shares tumbling, leaving the company vulnerable to attack from BHP and its Chief Executive Officer Mike Henry, who have been seeking to grow the copper business through big deals.
However, despite BHP having twice increased the number of shares it was willing to pay for Anglo American, Henry insisted on a demerger and no cash component to the deal.
Henry reiterated in a statement on Wednesday that BHP “always maintains a rigorous approach to mergers and acquisitions.”
Bloomberg reported last week that talks on value had moved closer after BHP raised its prices for a second time, but the price structure remained a key sticking point that the companies and their advisers had been unable to find a solution to.
Anglo American’s opposition to BHP’s proposal has centered on South Africa, which has been at the center of a potential deal since Bloomberg News first reported on the takeover proposal. Some of Anglo American’s largest operations are based in South Africa, where it employs tens of thousands of people and where the company has deep political and social ties.
Anglo American is concerned that BHP’s demand that it exit Anglo American Platinum Ltd and Kumba Iron Ore Ltd first could make the two new, independently listed companies in Johannesburg bear the cost of any concessions made by South Africa, thereby reducing their value and ultimately punishing existing Anglo American investors who will receive spin-off shares. The multi-step deal would require multiple layers of approval in South Africa, where deals are subject to a “public interest” assessment and authorities have a record of extracting large concessions from companies.
On Wednesday, the two sides appeared to be at odds, with BHP stressing the commitment it had made to secure regulatory approval in South Africa and Anglo American reiterating its concerns that approval could result in a loss of value for its shareholders, depending on the conditions imposed by authorities.
BHP argued that Anglo American should extend the deadline again and said the two sides would discuss a breakup fee if the deal did not receive regulatory approval, but BHP’s board said there was no reason to do so given the continued gap in the parties’ positions.
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