Melanie Burton and Scott Murdoch
PERTH/HONG KONG (Reuters) – BHP will stick firmly to the structure and price of its latest takeover bid for Anglo American (JO:), focusing instead on allaying its target’s concerns about execution risks in the coming week, sources said on Thursday.
The world’s largest listed mining group now has until May 29 to make a firm bid for Anglo American or face being forced to walk away for at least six months under UK takeover rules after Wednesday’s she was granted a week’s extension.
Two sources who have been in talks with the miner and its advisers said they expect BHP management to spend the next week properly understanding Anglo’s concerns on each asset with a view to convincing it of the merits of the deal.
Baden Moore, an analyst at brokerage CLSA in Sydney, said BHP’s goal would be to get Anglo American to agree to open its books and allow a further extension.
“They are gradually, gradually approaching an agreement,” he said.
Anglo chairman Stuart Chambers on Wednesday raised concerns about the risks of completing and implementing BHP’s offer, meaning the structure of any deal and the fate of Anglo’s South African business remain major obstacles.
One solution BHP has already proposed is to foot the bill for the Kumba spin-off, which is expected to generate $2 billion in much-needed capital gains tax for the South African government, according to BHP’s scoping assessment, one of the sources said.
Anglo last week announced plans to either spin off or sell its less profitable nickel, diamond and platinum mining operations to refocus on them, as well as sell off its coal operations.
Under this plan, Anglo would have to bear the significant cost of capital allocation itself, which would ultimately be borne by its shareholders.
If the deal doesn’t go through, Anglo boss Duncan Vanblad will be under pressure to maximize profits, particularly for his diamond business, and ensure the company’s split goes off smoothly, two investors said. One wrong foot and BHP will be ready to pounce, they say.
“I think Anglo won’t exist in a year, one way or another,” said one investor.
BHP and Anglo will hold joint meetings with UK and Australian regulators this week, a separate source told Reuters.
BHP’s latest approach of 29.34 pounds per share, based on undisturbed share prices at market close on April 23, valued London Stock Exchange-listed Anglo at 38.6 billion pounds (about $49.1 billion). The offer remained conditional on Anglo splitting its platinum and iron ore assets in South Africa.
The May 29 deadline coincides with the general election in South Africa, where Anglo was formed and remains of national importance.
BHP shares fell 3.8% to A$44.47 on Thursday.
Anglo shares rose 0.4% to £26.98 on the London Stock Exchange on Wednesday.
($1 = 0.7864 pounds)