Investors welcome BHP decision to walk away from Anglo acquisition after three failed bids

BHP Group investors appeared to welcome the global mining giant's decision to abandon its $49 billion bid to take over its rival, UK multinational Anglo American. Anglo had rejected three BHP takeover proposals over the past six weeks.

BHP's choice to withhold a binding bid followed Anglo's refusal to grant an extension needed to finalize a deal requiring Anglo to first spin off its South African assets.

This decision ended a tense standoff between the two mining powerhouses, during which shareholders had cautioned BHP against overpaying for control of Anglo.

Andy Forster, senior investment officer at Argo Investments, which holds BHP shares, told Reuters he “applauded” the firm’s discipline in backing away from the acquisition:

"It was one of the best opportunities out there for them and it was always going to be hard to complete. I applaud them for showing discipline”.

BHP's timing was prudent, but the deal's complexity — requiring demergers — and a copper price rally made it difficult to execute, Forster added. Copper prices have surged by 20% year-to-date, with Citibank calling a bull market for the commodity in April. Hedge fund manager Pierre Andurand said last week that copper prices could reach $40,000 per ton in the next few years on surging green demand — and a shortage of copper supply.

Although BHP's Australian-listed shares fell 1.75% on Thursday, this performance was in line with its peers.

BHP aimed to consolidate copper assets with Anglo takeover

Securing the Anglo deal would have been a major achievement for BHP CEO Mike Henry, who has been reshaping the company since taking the helm in January 2020, including last year's $6.4 billion acquisition of copper producer Oz Minerals.

BHP aimed to gain control of Anglo's valuable copper assets in Latin America and its metallurgical coal assets in Australia, boosting its stake in metals critical to the global transition to clean energy and electric vehicles.

Pendal Group portfolio manager Brenton Saunders told Reuters he wasn’t so sure that the deal would have proved beneficial for the BHP stock price:

"As investors, it wasn’t obvious that the proposed deal was very accretive. Yes, it would bring more copper to the portfolio, but depending on what they paid for it, it's not necessarily accretive to the share price”.

BHP's pursuit of Anglo also highlighted a growing trend among miners to acquire rather than develop new assets, due to rising development costs and prolonged regulatory approval timelines. Building a new mine now averages over 16 years, according to S&P Global data cited by Reuters.

RBC analyst says BHP could target Antofagasta or Lundin Mining next

Potential future targets for BHP could include London-listed Antofagasta or Canada's Lundin Mining, both of which have copper assets in northern Chile, where BHP operates its Pampa Norte operations, suggested RBC analyst Kaan Peker. He added:

"Anto is the one that screams the most synergies...but they are very expensive. Most of these you’re going to pay a large premium, so you have to have a lot of synergies to justify it”.

Instead of pursuing Anglo, Pendal's Saunders said BHP will likely refocus on its growth opportunities in Pilbara iron ore and copper in South Australia and Chile, while potentially increasing dividends.

Under British corporate laws, BHP must now wait six months before it can approach Anglo again, unless another party bids for Anglo in the meantime.

Following BHP's withdrawal, Anglo said it was committed to delivering shareholder value through its current plans, which include divesting less profitable assets to focus on expanding copper production.

Anglo-American shares closed 3% lower at £24.80 in London trading on Wednesday and were 0.71% down at £24.62 in morning trading on Thursday. Despite the recent declines, Anglo stock is up close to 25% year-to-date.

RBC’s Peker said that BHP may also resort to playing the long game and seeing how Anglo’s investors react to the deal falling through:

"BHP will bide it's time for six months and see how investors agitate on the Anglo side”.