OPINION | BHP lost this battle more than Anglo won it | Business

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Mike Henry only has himself to blame for failing in his quest to buy the best parts of miner Anglo American. The chief executive officer of BHP wanted to do an unconventional £38.6 billion (R900 billion) transaction requiring a carefully choregraphed mating dance. Yet he repeatedly made it easy for Anglo to push him away.

BHP, capitalised at £119 billion, coveted Anglo for its copper assets. They’re a valuable commodity in an electrifying world. What the Melbourne-based giant didn’t want was Anglo’s stakes in two Johannesburg-listed miners focused on platinum and iron ore. So it proposed a two-part deal: Anglo would first transfer ownership of the listed stakes to its shareholders, then BHP would acquire what was left.

This goal constrained BHP’s tactics. It effectively ruled out the useful threat of a hostile bid. Any breakup prior to a takeover would need Anglo’s support. Going hostile for Anglo in its current form was conceivable. But a lot of the mud slung around in a contested campaign would have stuck to BHP and undermined its ambition.

The unusual bid also was an easy target for criticism. The complexity of doing two shareholder distributions and a takeover simultaneously clouded the timetable.  The takeover proposal was denominated in BHP shares, creating the risk that its value at the end of the process would be lower than today.

BHP’s first approach was provocatively low and got nowhere. Even the third failed to deliver the necessary knockout. It finally brought Anglo to the table last week but the criticism remained that the real value on offer was slippery.

Raising the price, including cash to make things more certain and making the deal conditional on one carveout not two were the obvious options to mitigate that risk. Or offering to buy all of Anglo in one go. Yet the most meaningful of the last-minute sweeteners BHP made public was a willingness to include an “appropriate” breakup fee. UK takeover rules granting Anglo the discretion over whether to extend talks beyond a regulatory deadline further weakened BHP’s leverage.

Finally, BHP tied its hands from unilaterally tweaking the existing share-swap terms, calling them “final” unless the Anglo board recommended a deal. Another gift to Anglo, which could just sit back and let the clock run.

BHP has all along said the uncertainties around its two-stage offer were easily manageable. If so, why was it so reluctant to make a normal bid for Anglo and conduct the breakup itself? Such a deal was clearly in reach. Anglo’s decision to enter talks on an approach it valued at just over £29 a share is suggestive of the ballpark price of surrender to any conventional offer. That represented a standard takeover premium of around 30%.

Anglo was right to dig in. The goal here was to extract a high price, not to sell itself. There appear to have been no meaningful changes from BHP to address some legitimate concerns. Anglo shareholders seem better off under its own plan, which involves a separation of platinum, a sale of diamonds and cuts to costs and capital expenditure. There’s a lot of work to do. But Anglo could still benefit from a synergistic takeover after that shrinkage has taken place. Such a deal could well happen on better terms than those available today.

Has BHP had a lucky escape? Its share price ticked up with confirmation there would be no deal and Henry underscoring his firm’s “disciplined approach to mergers and acquisitions.” Still, it’s a stretch to think BHP has avoided a bad transaction. Its most recent offer reflected what some analysts saw as fair value for Anglo even before adding synergies. OK, it wasn’t a bargain. The fact is, you rarely get a trophy asset on the cheap.

Anglo began with weak credibility, and many shareholders will be skeptical of its ability to deliver on the strategy it announced in the wake of BHP’s approach. BHP lost this battle more than Anglo won it. Another miner, such as Rio Tinto or Glencore, could yet try where BHP failed. Activist Elliott Management is also lurking on Anglo’s register.

Anglo CEO Duncan Wanblad has gotten the chance to start his new strategy. It’s not clear he’ll be allowed to finish it.

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