BHP and Anglo American agree to more time for further engagement on BHP’s takeover proposal.

Increased and Final Offer Ratio

An increased and final offer ratio of 0.8860 BHP shares for one Anglo American share has been firmly rejected by the Anglo American Board. This is the third proposal put to Anglo American and provides Anglo American shareholders with a 17.8 percent equity stake in a combined BHP and Anglo American. The first and second offers from BHP were for 0.7097 BHP shares and subsequently for 0.8132 BHP shares.

According to BHP the revised offer based on share prices at 22 May is equivalent to 31.11 GBP per Anglo American share. This represents a 47 percent premium to the undisturbed Anglo American share price of 21.11 GBP as at 23 April 2024. BHP have stated that their increased offer price ratio considers the increased value from Anglo American’s recently announced restructuring proposal and cost-out plans.

Although BHP’s offer is described as ‘Increased and Final’, it is governed by different rules compared to the ’Best and Final’ rules under Australia’s ‘truth in takeovers’ policy administered by ASIC. Under Australia’s takeover rules, once a takeover offer is stated to be ‘Best and Final’, the offer terms cannot be increased. However, under UK takeover rules, BHP’s ‘Increased and Final Offer’ can be improved if another party emerges with a higher share offer ratio.

Structure of the Takeover Proposal

Anglo American have stated that BHP’s latest all-share proposal is complex and places all of the transaction completion risk on Anglo American shareholders. BHP’s proposal involves the contemporaneous demerger of Anglo American Platinum and Kumba Iron Ore to Anglo American shareholders by way of a pro-rata distribution of shares in both companies. The de-merger of both companies is to occur immediately before completion of the Scheme of Arrangement.

Anglo American have stated that two de-mergers and a simultaneous takeover, where each transaction is dependent on the other, is unprecedented and would require additional material approvals and conditions, particularly in South Africa. The process would take 18 months to complete and according to Anglo American carries significant execution and completion risks relating to both value and time. The Anglo American Board have contrasted BHP’s complex takeover proposal with Anglo American’s simpler standalone plan to accelerate shareholder value delivery announced on 14 May and its plan to demerge Anglo American Platinum Limited and Kumba Iron Ore.

Next Step

BHP now has until May 29 to either announce a firm intention to make a formal offer for Anglo American or announce that it does not intend to make a formal offer for Anglo American. Under UK takeover laws, this offer deadline can be extended with the consent of the UK takeovers panel.

It appears that Anglo American may be receptive to BHP’s offer price but not the structure of the proposal because of its complexity. Execution risks and the extended timeline to completion, resulting in material value leakage to be disproportionately suffered by Anglo American shareholders, are the reasons cited by Anglo American’s rejection of BHP’s takeover offer. At no stage of the takeover process to date has the purchase consideration amount offered by BHP been a significant stumbling block.

BHP have until May 29 to formally propose a simpler offer that expedites the transfer of full value of the purchase consideration to Anglo American shareholders. An offer that meets these criteria stands a better chance of acceptance by the Anglo American Board than the current proposal.