Unlock the Editor’s Digest for free
Roula Khalaf, editor of the FT, selects her favorite stories in this weekly newsletter.
Anglo American has been pressured by major shareholders including BlackRock to expand talks with BHP over its proposed £38.6 billion mining mega-merger.
Shareholders were key in convincing the FTSE 100 group to enter negotiations with its Australian rival, according to people familiar with the matter. This week, Anglo received a third proposal valuing it at £31.11 per share – a level that is within the range of ‘fair value’ for some shareholders.
However, Anglo rejected this ‘final’ offer from BHP on Wednesday, but surprised the market by extending talks for another week, keeping hopes of the deal alive. BHP has until 5pm on Wednesday to make a formal offer or walk away.
BlackRock, which owns a 9.6 percent stake in Anglo, was among a handful of investors encouraging meaningful negotiations with BHP, the people close to the situation added.
Much of BlackRock’s stock is held through passive funds that track an index, but the world’s largest asset manager has major influence in the sector through Evy Hambro, chief investment officer for natural resources and a mining industry veteran. It also owns 6.9 percent of BHP.
BlackRock and Anglo declined to comment.
Two other major shareholders, Ninety One and Sanlam Investments, told the Financial Times they also supported the decision to extend, despite concerns about a deal structure that will require Anglo to divest its stakes in its South African platinum and iron ore units.
“We have been advocates of what is in the best interests of Anglo shareholders and wanted them to at least have a conversation with BHP,” said one shareholder.
The investor said they were keen for the company to weigh the merits of the BHP offer against Anglo’s own proposal to break itself up.
Dawid Heyl, portfolio manager at Ninety One, which owns 1.8 percent of Anglo, said that “we think an agreed deal would be a good outcome, and it looks like it could go that way.”
He added that £31 is “within the range of the kind of premium you would expect for a change of control at a company”.
The extension of the deadline – which coincides with South Africa’s general election – marked a turning point in the proceedings, with Anglo showing the first signs of willingness to participate.
However, the management team, led by Duncan Wanblad, believes its own plans to divest four major units will create more value than an acquisition.
The distance between the two parties and the national elections could mean that negotiations are extended again.
The two sides are trying to reconcile estimates of the risks associated with implementing two demergers and a change of control at one of South Africa’s most iconic companies.
A number of Anglo shareholders are still against the deal. Old Mutual, which owns 2.2 percent, was not convinced the final offer had the knockout premium needed for its support.
“The company still faces the problem that no matter what happens you’re locked into a fixed rate waiting for them to unbundle Kumba and Amplats, which could take 18 months to two years,” says Old Mutual analyst Ian Woodley. “At least with Anglo’s plan you could get a value for Anglo that, if buyers were to rise as some think it might, would be a more representative reflection.”
Woodley adds that to reach a deal “the question is: will BHP be willing to change the structure?”
The structure must be changed or BHP will have to pay more, say people close to Anglo.
But people familiar with BHP’s thinking insist there is no more wiggle room over structure or price – just smaller, creative structures to better share risk.
Andrew Snowdowne, equity analyst at Sanlam, which owns 0.6 percent of Anglo, said “we think more should be allowed for a deal premium,” while calling the decision to expand talks “prudent.”
South Africa’s Public Investment Corporation (PIC), the second-largest Anglo shareholder, said on Wednesday any deal would require a “meaningful review” to take into account “material risks” to shareholders.