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Failed Anglo bid is net negative for BHP CEO

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The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Karen Kwok

LONDON, May 29 (Reuters Breakingviews) -There’s no third time lucky for Mike Henry. The BHP BHP.AX chief executive’s five-week pursuit of Anglo American AAL.L ended on Wednesday when the London-listed group rejected the Australian miner’s request to extend talks about a $47 billion takeover. It’s an embarrassing setback for Henry, who appears to have misjudged his target’s openness to a deal. At least he preserved his reputation for financial discipline – and may yet get the chance to try again.

Anglo left the door open for a negotiated deal last week when it agreed to extend talks by seven days, despite rejecting BHP’s third all-share proposal. However, the two sides have made little progress since. Anglo’s board objected to BHP’s demand that the company unbundle its listed South African platinum and iron ore units before the Australian group proceeded with its all-share offer.

These two businesses have a combined value of about $14 billion, about a third of Anglo’s value. Anglo shareholders would bear the risk that the value of the companies would fall after they were spun off. The deal would also attract scrutiny from South Africa’s Competition Tribunal, which considers how deals affect the local community and employment. Concessions can be pricey: when Heineken spent 2.4 billion euros on brewer Distell in 2021, the Dutch brewer had to pledge more than 500 million euros of local capital investment.

BHP on Wednesday said it had offered some commitments, including maintaining Anglo’s employment in South Africa for at least three years and setting up a “Mining Centre of Excellence”. It also insisted that the risks attached with the spinoffs were “quantifiable and manageable” and that BHP would be willing to pay a break fee if the deal failed to clear regulatory hurdles. However, as Anglo pointed out, the Australian group was not prepared to directly take on the risks associated with the spinoffs itself.

Anglo boss Duncan Wanblad must now prove to shareholders that the company’s own breakup plan, which he hurriedly unveiled earlier this month, can deliver value by divesting the company’s diamond, nickel, steelmaking coal and South African platinum operations. Anglo shares fell below 25 pounds on Wednesday, 16% below the implied value of BHP’s offer.

Henry, meanwhile, must revisit his own growth plans. Analyst estimates compiled by Visible Alpha suggest BHP’s EBITDA will peak in the fiscal year to June 2025 and then decline for five years. However, Henry has a range of options. He could bid for Canadian miner Teck’s metals business or make an offer for Anglo’s coal unit. And if Anglo stumbles again, BHP will be free to come back in six months’ time. On balance, though, Henry’s failed bid is a net negative.

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BHP on May 29 said it did not intend to make a formal offer for Anglo American, walking away from its $47 billion takeover for at least six months, after Anglo rejected BHP’s request for more time to discuss its takeover proposal for the UK-listed mining group.

“We remain of the view that our proposal was the most effective structure to deliver value for Anglo American shareholders, and we are confident that, working together with Anglo American, we could have obtained all required regulatory approvals, including in South Africa,” BHP Chief Executive Mike Henry said.

Earlier in the day, London-listed Anglo said it had rejected BHP’s request for more time to discuss the deal, a week after agreeing to extend discussions with BHP to iron out concerns over the structure of the proposed deal. The Australian group wanted Anglo to unbundle its South African platinum and iron ore units before the takeover.

On May 29, BHP said it needed more time to engage with Anglo, while outlining commitments to minimise regulatory risk in South Africa and saying it would offer a break fee if the deal failed to gain regulatory approvals.

Those commitments included job security for employees in South Africa. BHP also said it would shoulder the costs of increased South African employee ownership that is expected to be required in any demerger.

“Throughout the engagements with BHP, BHP continues to restate its belief that the risks of its complex structure are not material, yet has repeatedly and consistently stated both publicly and during the engagements that it is unwilling to amend its proposed structure to assume these risks,” Anglo said in a statement. BHP said Anglo’s assertion was “not accurate”.

Anglo shares were down 3.8% to 24.57 pounds as of 1532 GMT on May 29. BHP’s shares closed flat at A$45.08.

Graphic: BHP’s final offer was worth more than Anglo’s shares https://reut.rs/3wUug8X

Editing by Peter Thal Larsen and Oliver Taslic


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