Buying BHP shares for the Anglo takeover? Here's why it might be a 'crazy' move

This expert thinks BHP's takeover of Anglo American could be "a complete mess". But why?

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BHP Group Ltd (ASX: BHP) shares have been getting even more attention than usual in recent weeks.

As the largest company listed in Australia, the S&P/ASX 200 Index (ASX: XJO) mining giant is already a frequent headline leader.

But investor and media interest in BHP shares ramped up to the next level on 26 April. That's when the miner announced it had made a non-binding offer to acquire Anglo American (LSE: AAL).

The all scrip offer amounted to 31.1 billion British pounds, or roughly AU$60 billion.

As you're likely aware, BHP is eyeing Anglo American with an eye on its copper assets.

Copper represents 30% of Anglo American's total production. Should BHP's takeover succeed, the ASX 200 miner would become the world's top copper producer, producing around 10% of global output.

Amid growing demand and limited new supplies, the copper price has surged 16% year to date to US$9,905. And most analysts expect copper prices to continue trending higher from here.

It's a markedly different story for iron ore, the top revenue earner for BHP shares. The iron ore price is down 16% in 2024 at US$116 per tonne, with many analysts forecasting it will trend lower from here.

Take two?

Now, as you're also likely aware, Anglo American's board rejected BHP's offer on 29 April.

Anglo American chair, Stuart Chambers said the offer significantly undervalued the company and its future growth prospects.

Rumour has it that BHP is likely to come back with an improved offer. The company has until 22 May to place a formal offer under UK acquisition regulations.

But if you're buying BHP shares for the takeover potential, Aitken Mount Capital Partners stockbroker Angus Aitken cautioned the result could be a "complete mess".

Why BHP shares could get walloped by the Anglo American takeover

According to Aitken (courtesy of The Australian Financial Review), BHP is primarily interested in Anglo American's copper and coal assets. Meaning that it could look at selling numerous other projects, including the Barro Alto nickel mine in Brazil.

And that could throw up some longer-term headwinds for BHP shares.

According to Aitken:

In our view, this deal really does have the potential to be a complete mess for BHP long-term. This is like BHP is trying to buy a six-bedroom house, just to get the garage. There are multiple large risks in BHP long-term in trying to sell off the assets they don't want.

He added that this strategy "seems crazy to us".

And the takeover proposal is far from simple.

"If you are a BHP shareholder and think this is a simple transaction, you have rocks in your head," he said.

Aitken continued:

BHP are the single worst sellers of assets in the world with Rio Tinto a close second, and yet a lot of this potential deal involves BHP on-selling assets for good prices, and we are cautious on that. How are you going to get a full price for the assets they want to divest when everyone knows you are a non-natural owner of them?"

Certainly, not everyone agrees with Aitken's bearish take on the proposed acquisition.

Both Argo Investments and Wilson Asset Management believe the takeover can add value to BHP shares over time.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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