BHP Eyes Anglo With $39B Bid Amid Regulatory Watch

Key Takeaway

• BHP's bid for Anglo American at $39 billion highlights strategic expansion, with shares trading 8.8% above the initial offer.
• Market expects a higher bid from BHP, between £28 and £35 per share, to secure Anglo's valuable copper assets.
• The merger faces regulatory scrutiny, especially from China, due to its impact on global copper supply and antitrust concerns.

Evaluating Anglo American's Worth

As the mining industry watches closely, BHP Group's potential acquisition of Anglo American Plc raises questions about the valuation of the latter. Anglo American's shares are currently trading approximately 8% above the value implied by BHP's initial offer, which was quickly rejected. Bloomberg has reported that BHP is contemplating a higher bid. The challenge for BHP lies in proposing a deal attractive enough for Anglo's shareholders without alienating its own, especially considering BHP's history of less-than-successful acquisitions. BHP's interest primarily lies in Anglo's substantial copper operations, despite Anglo's diverse portfolio that includes diamonds, platinum, and coal. BHP has expressed a desire for Anglo to divest its majority stakes in two South African mining companies even before any deal is finalized, indicating a strategy to streamline operations post-acquisition.

Strategic Expansion Efforts

BHP's $39 billion bid for Anglo American is part of a broader strategy to solidify its position in the global mining sector. This move involves engaging with South African officials and stakeholders, given Anglo American's significant presence and historical roots in the region. BHP's proposal includes a plan for Anglo American to spin off its Johannesburg-listed platinum and iron ore units, which could potentially benefit South Africa's economy and stock market. However, the bid comes at a politically sensitive time in South Africa, with national elections on the horizon, leading to heightened scrutiny from opposition parties and concerns from Mining Minister Gwede Mantashe about BHP's previous divestments in the country.

Market Reactions and Expectations

The market has reacted to BHP's bid with anticipation of a higher offer, as Anglo American's shares have surged 8.8% above the initial proposal. Analysts and traders surveyed by Bloomberg suggest that a successful acquisition would require BHP to propose between £28 and £35 per share, with an average estimate of £30.43, approximately 15% higher than Anglo's current trading price. This expectation stems from the belief in the inherent value of Anglo American's assets, particularly its copper business, which is considered the company's crown jewel. The potential for a rival bidder to present a simpler, possibly higher offer remains, as Anglo American's recent share price weakness is seen as an opportunistic moment for acquisition.

Regulatory and Strategic Implications

The proposed merger between BHP and Anglo American carries significant regulatory and strategic implications, especially concerning China, the world's largest consumer of commodities like copper and iron ore. The merger could position the combined entity as the world's top copper producer, attracting attention from Chinese firms and regulators. China's strategic interest in securing supplies of essential commodities could influence its response to the merger, including potential regulatory hurdles. Antitrust concerns are expected to play a crucial role, with China possibly leveraging its regulatory framework to ensure access to critical raw materials or influence the deal's outcome.