The world's largest global diversified miner, BHP, is being forced to significantly raise its buyout offer of Anglo American or walk away from the proposed all-share deal valued at £31.1 billion ($38.9 billion).
"The BHP proposal is opportunistic and fails to value Anglo American's prospects, while significantly diluting the relative value upside participation of Anglo American's shareholders relative to BHP's shareholders," Anglo chairman Stuart Chambers wrote in a statement on Friday.
Chambers continued, "The proposed structure is also highly unattractive, creating substantial uncertainty and execution risk borne almost entirely by Anglo American, its shareholders and its other stakeholders."
The first indication that Anglo executives would reject the deal came Thursday afternoon when Reuters reported two sources familiar with talks with top Anglo investors who said the offer was 'unattractive.'
Anglo owns massive copper mines in South America. The miner has become an acquisition target of BHP solely to create the world's largest copper mining giant, with control of about 10% of the global copper mining supply. Copper mining supplies are dwindling, and demand is expected to soar as power grids worldwide are upgraded to support the green energy transition.
The Financial Review quoted hedge fund manager Rafi Lamm of Melbourne's L1 Capital as saying BHP would have to increase its bid for Anglo's assets, which have been underappreciated by the market and make strategic sense for BHP.
"We think it's a sensible move by BHP and we think they can afford to pay the proposed deal pricing and a lot more," Lamm said.
James Whiteside, head of mining and metals corporate research at consultancy Wood Mackenzie, said BHP will have to raise its offer to bring its value "closer to the share price in 2023 before operational issues emerged."
On Thursday, BHP proposed an all-share deal valued at £31.1 billion ($38.9 billion). The transaction depends on Anglo spinning off its South African iron ore and platinum businesses to its shareholders. The offer is conditional and non-binding at £25.08 a share, or about a 14% premium to Anglo's closing share price on Wednesday.
BHP investor Equity Trustees Asset Management told the Sydney Morning Herald that BHP's bid to buy Anglo American made sense strategically, "but much will depend on what BHP will eventually pay."
"Having a bit more copper in the portfolio is a positive. If copper can move up from here this will likely offset any errors made in its purchase price of Anglo," Equity Trustees head of equities Chris Haynes said.
Haynes added, "As we know, large acquisitions like this always have problems and will likely weigh on the BHP stock price in the short term."
Shares in BHP fell on Friday, ending the Australian session at 4.6% lower.
Meanwhile, copper prices hit $10,000 a ton for the first time in two years, fueled by speculation of dwindling supplies and robust demand from the green energy transition.
Copper bulls like BlackRock and Trafigura Group have said the base metal must move higher to spur new mine development.
BofA recently warned, "The copper supply crisis is here."
Let's not forget our note titled "The Next AI Trade," which explains the investment opportunities in upgrading America's grid as generative AI data centers increase power demand.
And Jefferies is on it: "Copper Demand in Data Centers."
Recall billionaire mining investor Robert Friedland, who explained last year on Bloomberg TV that "copper prices might explode ten times."
