Update on BHP's offer for Anglo American

Company News

by Peter Milios

BHP Group (ASX:BHP) disclosed a revised proposal for merging with Anglo American plc (Anglo American), and in response, the Board of Anglo American extended the offer deadline to the 29th of May 2024. BHP welcomed this extension as an opportunity to address concerns raised by Anglo American regarding its proposal. Since then, BHP has engaged extensively with Anglo American and its advisers to resolve these matters.

BHP’s Response to Anglo American

BHP has presented a series of socioeconomic initiatives to assuage Anglo American’s apprehensions regarding the proposed transaction structure. These measures are intended to not only address concerns but also support South African regulatory approvals. The company asserts that it has thoroughly analyzed comparable market transactions and believes that the associated risks are manageable and have been factored into the offer ratio of its proposal.

BHP contends that its proposed initiatives would offer greater economic benefits to South Africa compared to Anglo American’s Accelerating Value Delivery plan. Additionally, BHP has expressed openness to discussing a reverse break fee, payable by BHP, in the event that necessary anti-trust and regulatory approvals, including those in South Africa, are not obtained.

Socio-Economic Initiatives in South Africa

BHP’s proposal includes an all-share offer for Anglo American, contingent upon the pro-rata distribution by Anglo American of its entire shareholdings in Anglo Platinum and Kumba Iron Ore to its shareholders prior to completion of the arrangement scheme. Both Anglo Platinum and Kumba Iron Ore would continue to be listed on the Johannesburg Stock Exchange (JSE).

BHP plans to maintain its listing on the JSE, anticipating an index weighting of approximately 5% upon completion. The company believes that this move would bring clear benefits to the South African government, economy, and communities by elevating Anglo Platinum and Kumba Iron Ore as major standalone entities with increased JSE index weightings.

Moreover, BHP aims to continue and expand on Anglo American’s social investment and value creation in South Africa, including initiatives such as supporting increased South African employee ownership, establishing a Mining Centre of Excellence, maintaining employment levels, funding charitable commitments, promoting local procurement and engagement, ensuring continued access for South African investors, and upholding existing South African Reserve Bank and National Treasury undertakings for a minimum of three years.

Next Steps

BHP asserts that the proposed measures provide substantial risk protection for Anglo American shareholders, supplementing the potential value increase resulting from the merger. The company advocates for a further extension of the deadline to facilitate additional engagement on its proposal.

However, it's important to note that this announcement does not confirm a firm intention to make an offer, and there is no certainty regarding the finalization of any agreement or transaction. This announcement is made solely by BHP without prior agreement or approval from Anglo American.

As BHP continues its efforts to address concerns and foster collaboration with Anglo American, the future of this proposed merger remains uncertain. The company’s commitment to socioeconomic initiatives in South Africa underscores its dedication to creating value for stakeholders and contributing positively to the local economy.

Peter Milios

Peter Milios is a recent graduate from the University of Technology - majoring in Finance and Accounting. Peter is currently working under equity research analyst Di Brookman for Corporate Connect Research.

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