Anglo American Rejects BHP's "Undervalued" US$38.8 Billion Bid

Will BHP kick off mega M&A deals?

BHP's offer of 25.08 pounds (US$31.39) per Anglo share is a premium of 31 percent from Wednesday's (April 24) closing price. If completed, it would be BHP's second big acquisition in a year after its 2023 purchase of OZ Minerals.

It would also be the first mega deal among the world's largest diversified miners in over a decade.

After years of caution following a series of failed transactions, including an attempted acquisition of Rio Tinto (ASX:RIO,NYSE:RIO,LSE:RIO) in 2007, BHP may now be poised to lead a resurgence in M&A activity.

Beyond copper, the proposal also holds implications for BHP's potential venture into the diamond business, as Anglo American holds an 85 percent stake in diamond giant De Beers.

Unlike Anglo American Platinum and Kumba Iron Ore, which BHP wants to see distributed to shareholders before proceeding, Anglo's diamond business would be subject to a strategic review post-transaction.

Industry reactions and future implications

Todd Warren, an Anglo shareholder and portfolio manager at Tribeca Investment Partners in Sydney, said BHP’s first offer only sought to feel out Anglo’s stance, adding that he does not expect BHP to give up easily.

"With regards to a price, I think it's pretty clear that the initial shot fired is just that. It’s just the first shot — it's not their best and final. We would need to see more money on the table before we sold our shares,” he said.

As mentioned market analysts and industry leaders have offered mixed reactions to the proposed deal. While some shareholders have expressed concern over the quality of BHP's bid, others anticipate further interest in Anglo, potentially igniting additional large-scale consolidation within the mining sector.

Analysts at Jefferies, led by Christopher LaFemina, told Fortune that BHP’s first bat will lead to more bids emerging.

They indicated that an offer valuing Anglo at US$42.6 billion, representing a 28 percent premium based on its latest share price, could be sufficient to push the deal across the finish line.

BHP's 2023 copper production of about 1.2 million metric tons on an equity basis surpasses Anglo's output of 826,000 metric tons; combined they would have a substantial 10 percent share of global mine supply.

However, analysts have cautioned that antitrust issues may pose a significant challenge, as governments often view copper as a strategic mineral. The proposal for Anglo may also prompt other mining giants to make moves.

Rio Tinto, the second largest mining company, has been actively investing in copper production, while Glencore (LSE:GLEN,OTC Pink:GLCNF) made an unsuccessful bid for Teck Resources (TSX:TECK.A,TSX:TECK.B,NYSE:TECK) last year before eventually reaching a deal for the Canadian company's coal assets.

For their part, BHP investors remain optimistic about the prospect of restructuring the offer to secure the deal.

"I am a bit surprised that the deal is not an agreed deal. It likely means BHP will need to offer more to win over shareholders and management and risks creating unhelpful animosity," said Pendal portfolio manager Brenton Saunders in comments to Reuters.