By Joe Hoppe and Christian Moess Laursen

THE NEWS: U.K. mining giant Anglo American has rejected an improved near $50 billion takeover bid from BHP, saying the proposal continues to undervalue the company and the structure is too complex to execute.

Anglo has said it is willing to engage with BHP and requested a one-week extension to the formal offer deadline, until May 29.

The deal would have been the biggest ever in the mining sector.

Australia's BHP--the world's largest miner by market cap--first approached its rival on April 25, with an all-stock offer contingent on Anglo American spinning off its shareholdings in two South African listed units, Anglo American Platinum and Kumba Iron Ore. Each offer has included the same stipulation.

Since then, Anglo has set out plans to exit its platinum-metals, diamond, steelmaking coal and nickel operations to focus its portfolio on copper, iron and crop nutrients, in order to fend off further bids from rivals.

The restructuring--set to be completed by the end of next year--is expected to shave off $1.7 billion in costs, in addition to its annual target of $1 billion in cost savings, which Anglo said it remains on track to meet this year.

MARKET REACTION: Anglo American shares ended up 0.4% at GBP26.99 on Wednesday, bouncing back on the news from a 2.8% fall earlier in the session. BHP shares in London fell 4% to GBP23.29 on the news.


Although BHP said the bid would be its last bid, it doesn't seem final, Berenberg analysts wrote in a note. "The deal structure remains a core point of contention," they said, adding that they expect the Anglo board will be seeking a higher price.

Analysts at RBC Capital Markets view the news as positive for Anglo American given the extension leaves room for negotiating for a higher bid and negative for BHP, given what they perceive as excess project and synergy execution risk.

The offer of GBP29.34 a share is well above the top-range of what the Canadian bank sees as being value enhancing for BHP.

Ultimately, the pushed deadline shows a willingness to engage and increases the chance of an agreement being reached, RBC said.

"These are encouraging steps as we would expect further discussions to lead to a recommended offer from BHP that could include a possible change in deal structure," Jefferies analysts wrote.

CONTEXT: The first offer followed Anglo American shares sharply declining, creating a value opportunity. The firm's market value shrank last year due to operational setbacks and downgraded production guidance.

Speculation that the British company could be a target for takeover emerged late last year, after the miner cut its production guidance for coming years, shaking the market. The company cited operational issues at a key copper mine in Chile and persistent logistical woes at its iron-ore operations in South Africa. Meanwhile, slumping platinum-metals and diamond prices further added to its headwinds.

Since Chief Executive Duncan Wanblad took the reins in April 2022, Anglo American's market capitalization has diminished from around $72 billion to around $36 billion today. Its shares have declined roughly 35% since then.

BHP's offer also comes at a time when copper prices are up more than 20% this year so far, boosted by expectations of tight global supplies and an optimistic demand outlook. Three-month copper is currently at $10,290.00 a metric ton. The prospect of shortages in copper concentrate is a key driver behind the rise, with the Cobre mine in Panama coming offline in the first quarter of the year and producers in Latin America struggling to ramp up output.

According to market watchers, prices are set to rise, driven by the expansion of clean-energy technologies and anticipated looser monetary policy in the U.S. and Europe. According to financial-services group MUFG, copper is forecast to reach $12,000 a ton by the end of next year as scarcity pressures intensify.

"Copper remains our most bullish long-term structural commodity conviction, and we have been cataloguing its unparalleled fundamentals--its central role in the energy transition, in AI and in military spending--since 2022," MUFG analysts said in a note.

WHAT'S NEXT: Anglo American's rejection reflects concerns that BHP's offer undervalued the company. In a separate release, BHP said this would be its final offer, but reserved the right to improve the proposal if other bidders emerge or if Anglo's board recommends an offer. BHP's move could also potentially trigger rival bids, according to analysts.

"It would be a surprise to us if BHP acquires Anglo without Glencore at least attempting to get involved in some way, shape, or form," Jefferies analysts said in a note to clients.

Still, the likelihood of a deal between BHP and Anglo has increased, the U.S. bank said, adding the talks could lead to a recommended offer.

To get a deal over the line, it would require BHP assuming the whole business rather than pursuing the contingent spinoffs, Berenberg said.

On balance, its likely the BHP bid will fail, but it is on a knife edge according to analysts at the German bank.

Under U.K. takeover rules, the Australian miner has until May 29 at 1600 GMT to state whether it intends to make a further bid or not.

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(END) Dow Jones Newswires

05-23-24 0536ET