BHP shares on watch after new $74b Anglo American takeover offer rejected

Is it third time lucky for the mining giant?

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All eyes will be on BHP Group Ltd (ASX: BHP) shares on Thursday after the mining behemoth confirmed that it has made a third offer for Anglo American plc (LSE: AAL).

At the time of writing, the miner's shares on Wall Street are down almost 4% on the news. This doesn't bode well for things locally today.

Third offer

BHP advised that on 20 May it submitted an increased and final offer ratio to the Board of Directors of Anglo American.

It notes that the structure of the revised proposal remains the same as previous proposals and comprises an all-share offer for Anglo American. It will once again be subject to the pro-rata distribution by Anglo American of its entire shareholdings in Anglo American Platinum and Kumba Iron Ore to shareholders immediately before completion of the scheme of arrangement.

Under the terms of the revised proposal, BHP has offered:

  • 0.8860 BHP shares for each ordinary Anglo American share, and
  • Ordinary shares in Anglo Platinum and Kumba Iron Ore (which would be distributed by Anglo American to its shareholders in direct proportion to each shareholder's effective interest in Anglo Platinum and Kumba)

This final offer ratio represents a total value of GBP31.11 (A$59.64) per Anglo American share or a total consideration of approximately A$74 billion.

It also represents an improvement on the original offer of 0.7097 BHP shares per Anglo American share, as well as its most recent offer of 0.8132 BHP shares per share.

Commenting on the offer, BHP CEO Mike Henry said:

BHP has put forward a final offer ratio of 0.8860 BHP shares for each Anglo American share. This is a significant increase from our first proposal and would provide Anglo American shareholders with 17.8% of a combined BHP and Anglo American. The revised proposal is underpinned by BHP's disciplined approach to mergers and acquisition and our focus on delivering long term fundamental value.

BHP's revised proposal will offer immediate value for Anglo American shareholders and allow them to benefit from the long-term value generation of the combined group. BHP looks forward to engaging with the Board of Anglo American to explore this unique and compelling opportunity to bring together two highly complementary, world class businesses.

Thanks but no thanks

Unfortunately for Mike Henry and his team, this latest offer has been rejected immediately by the copper miner.

Anglo American's chair, Stuart Chambers, revealed that its board believes the company is better off going it alone. He commented:

The Board is confident in Anglo American's standalone future prospects and believes that Anglo American has set out a clear pathway and timeframe to deliver the acceleration of its strategy to unlock significant and undiluted value for Anglo American's shareholders.

In addition, Chambers advised that the offer was not expected to deliver sufficient value to shareholders. He adds:

The Board considered BHP's Latest Proposal carefully, concluded it does not meet expectations of value delivered to Anglo American's shareholders, and has unanimously rejected it. In particular, it does not address the Board's concerns about the structure, which results in significant complexity, execution risks, an extended timeline to completion and consequently has the potential for material value leakage to be disproportionately suffered by Anglo American's shareholders. Multiple engagements with the BHP team have not yet been able to resolve the concerns on these issues.

However, Anglo American has left the door open to further talks. Chambers concludes:

However, the Board is willing to continue to engage with BHP and its advisers on this topic and has therefore requested a one week extension to the PUSU deadline which has been consented to by the Panel.

But whether BHP will be willing to increase its "final" offer remains to be seen.

Motley Fool contributor James Mickleboro 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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