14th May 2024 13:59
(Alliance News) - A break up of Anglo American PLC is on the cards, bid or no bid, analysts said on Tuesday, after the miner outlined a strategic plan intended to fend off a takeover approach from BHP Group Ltd.
On Tuesday, Anglo American unveiled a new "radical" strategy that will see it keep copper and iron ore assets, while getting rid of platinum and diamond businesses.
The move, which follows a "comprehensive asset review", comes a day after the London-based mining company rebuffed a sweetened offer from BHP Group Ltd, its larger Melbourne-based peer.
The new all-share offer from BHP valued Anglo at GBP34 billion, up from GBP31.1 billion under its previous offer. BHP is offering 0.813 of a BHP share for each Anglo share, giving a current value to Anglo shares of GBP27.53 each, based on BHP's own price.
As part of the proposed deal, BHP wants Anglo American to split off Anglo American Platinum Ltd and Kumba Iron Ore Ltd in South Africa.
To unlock shareholder value and to simplify its portfolio, Anglo American on Tuesday said it intends to "demerge" Anglo American Platinum Ltd and also "divest" or "demerge" diamond producer and marketer De Beers as part of its new strategy.
The diversified miner also wants to divest its steelmaking coal business, saying it is already responding to "strong" buyer interest. Anglo also is exploring options for a move into care and maintenance and divestment of its nickel operations.
In what it called "the most radical changes" in decades, Anglo said it has decided to focus on copper and iron ore, while retaining its crop nutrients "optionality" at Woodsmith in northern England.
Liberum said it turns out, "Anglo American doesn't need BHP's help to break up its business units. Today, the miner announced plans on how it will achieve the same outcome on its own."
The broker said the idea of breaking up Anglo American's collection of highly differentiated business units has lingered for years.
But such an exercise has always been regarded as "too difficult" to execute.
Now, BHP's bid has forced management's hand in pushing the big red breakup button, Liberum remarked.
The broker said Anglo American will emerge a leaner business, with earnings coming from half copper and half iron ore.
But for a typical generalist investor, Liberum does not believe that this commodity basket will hold the same attraction as a pure-play copper equity like Antofagasta.
"However, for a potential acquirer, it could have increased in value – since much of the breakup work would have been done for it," the broker suggested.
"This puts the BHP offer very much on the back foot. BHP cannot stick with its proposed structure. It makes more sense for Anglo American to do the breakup work itself: it has existing relationships with the governments of Botswana and South Africa. Perhaps BHP should simply wait. Anglo American will do most of the restructuring work," Liberum said.
"While the Anglo American restructure offers less certainty than a BHP bid, it may deliver a value-unlocking event that would appeal to long-term investors," it added.
Dan Coatsworth, investment analyst at AJ Bell said "bid or no bid, it looks as if we're getting a break-up of Anglo American whatever the outcome."
He also felt the break-up would make Anglo American "even more attractive" to potential bidders as it would have slimmed down and got rid of a lot of the fat that someone like BHP wouldn't want.
"In essence, it would create a fitter version of Anglo American and a bidder could come along and not have to waste time putting the acquired business on a weight-loss programme. A takeover seems inevitable, whether it's this year or over the next few years once the break-up has completed."
Anglo American shares were down 2.4% at 2,643.50 pence each in London on Tuesday. They were down 4.0% to ZAR609.50 in Johannesburg, while Anglo American Platinum was down 8.3% to ZAR719.57.
BHP was up 2.9% to 2,348.00 pence in London.
By Jeremy Cutler, Alliance News reporter
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