Analysis-BHP’s options for Anglo American deal narrow as deadline looms By Reuters

Written by Melanie Burton and Scott Murdoch

MELBOURNE (Reuters) – BHP Group's (NYSE:) options for its pursuit of rival miner Anglo American (JO:) include improving its $42.7 billion takeover bid, making a hostile bid or withdrawing for now as the May 22 deadline approaches. To make a binding offer.

As BHP considers its next move, CEO Mike Henry and his team have been making the case for the mega-deal on the sidelines of an investor conference in Miami and elsewhere to its investors, a large proportion of whom also own shares in Anglo.

“At this point, I think it will be up to BHP to try to convince enough of Anglo's institutional shareholders over the next week that it is worthwhile to put pressure on their board to engage with BHP, with potentially a higher offer on the table if that happens,” the Morningstar analyst said. John Mills.

Anglo's board has already rejected two all-share offers from BHP as insufficient and difficult to implement, and on Tuesday revealed plans to spin off to focus on energy minerals while separating or selling less profitable coal, nickel, diamond and mineral products. Platinum business.

This plan met with a somewhat supportive response from Anglo investors, who said it offered strategy but was short on details.

Except for Anglo retaining its South African iron ore assets and selling its Australian coal mines, it was also similar to BHP's own plans for the takeover target.

“It seems to me that they (Anglos) need to explain why a bird in the hand is no better than two in the bush,” said Anglo investor Todd Warren of Tribeca Investment Partners.

One of the top 25 English investors said there was nothing compelling in the company's restructuring proposal, leading shares to close 3.2% lower at 26.195 pounds on Tuesday, below BHP's latest offer of about 27.53 pounds per share.

“Anglo management needs to push for an increase. An additional 10%. And then wait for Glencore (OTC:),” said the investor, who requested anonymity due to the sensitivity of the matter.

Reuters reported this month that Swiss commodities group Glencore was considering a potential competing bid for Anglo.

“We maintain our view that hacker risks remain high,” JPMorgan analyst Lyndon Fagan wrote in a note published Tuesday before Anglo’s restructuring was announced.

Rio Tinto (NYSE:) CEO Jacob Stasholm said Tuesday that his company was not afraid of mergers and acquisitions, but had strong organic growth options.

BHP, Anglo, Glencore and Rio Tinto declined to comment on Wednesday.

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Under UK rules, BHP has one week to make a binding bid for Anglo or it will be forced to withdraw for at least six months.

To explain its position for the takeover, BHP pointed to its success in the spin-off South32 (OTC:), the spin-off of its oil business into Woodside (OTC:) Energy in 2022 and sales of its coal assets as evidence it is safer, according to slides from Henry's presentation in Miami.

It also cited implementation risks after Anglo management did not follow through on a 2016 vision for a “new Anglo” that would simplify the mining company’s structure to a core portfolio of diamonds, platinum group metals and copper.

The choice to take an aggressive stance and make its bid directly to Anglo shareholders is nothing new for BHP, which did so unsuccessfully in 2007 with a $140 billion bid for the shares of rival Rio Tinto. It also made a hostile $39 billion bid for Canadian company Potash in 2010, but it was rejected by the Canadian government.

But two sources familiar with the matter said BHP would not take that approach because it needs Anglo management to clear regulatory hurdles in South Africa and help it create the most value for shareholders. BHP also needs an agreed period of due diligence to examine Anglo's books, they added.

BHP also informed investors that it would not waive its requirements for Anglo to spin off its Kumba and Anglo American Platinum businesses in South Africa as a condition of the deal. A binding offer at the price Anglo has already rejected would force BHP to buy the entire company, which it is not prepared to do, a source familiar with the matter said.

This narrows BHP's options for a revised offer to improve the equity ratio, add some cash, or a combination of the two.

It could also decide to withdraw, just as Xstrata, later bought by Glencore, did from a proposed $96 billion Anglo-Anglo merger, which Anglo's board rejected in 2009.

BHP has told investors that Anglo is not a bargain and may need time to reevaluate, a prospect that is increasingly being priced in as BHP shares rise, one investor said.

BHP shares rose 2.6% on Wednesday.

The investor added that BHP could return later once Anglo undertakes further restructuring, although it would need to be at a higher price.