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(Bloomberg) — Anglo American Plc Chairman Stuart Chambers closed a board meeting at 7:30 a. m. Wednesday morning from the company’s headquarters in London, on the street where his iconic company De Beers had resided for nearly a century.
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Administrators had spent the last hour discussing a request through the BHP Group to extend the deadline for its $49 billion takeover bid, which is set to expire later in the day. In the middle of their meeting, the phones lit up with what would become BHP’s latest step in the six weeks of bitter fighting: advocating for a deal and publicly asking for more time.
But the Anglos have made a unanimous decision. There would be no chance.
The board’s verdict has already ensured Anglo’s survival, at least for now. But it’s also the start of a new bankruptcy for the 107-year-old company and its South African boss, Duncan Wanblad, which will now have a dramatic turnaround plan in place under the control of predatory rivals as well as shareholders, who have just seen a 39% acquisition premium disappear.
“I don’t need anything to get in the way of getting it done,” Wanblad said Thursday. “We need to demonstrate early progress and continued progress. It will be done. “
The CEO has been in the role for just over two years. He inherited a developing business, supported by strong commodity markets, but things temporarily deteriorated when lower costs laid bare a number of problems within the company’s expanding portfolio that were bubbling beneath the surface.
Read: Anglo’s stumbles make it prey to mining’s most sensible predator
Now he has vowed to save Anglo by breaking it up, with an ambitious plan to get rid of platinum and coal and sell or spin off De Beers. Wanblad has yet to find a solution for a huge allocation of half-built fertilisers in the north-east of England. which he defended before becoming CEO. And it will have to do everything over its shoulder: BHP can return in six months if it chooses. And the corporations that Anglo has pledged to spin off are the same ones that have long deterred other suitors. .
“The pressure is on Anglo,” said Ben Davis, an analyst at Liberum. “If they don’t keep their promises, it’s over. Even if they keep their promises, they’re probably done. “
Defense discussed
In the weeks following the first release of the takeover bid, both corporations appeared to be on the back burner. BHP was left groping after initial mismanagement in South Africa, adding a rigged race through CEO Mike Henry amid the closest election in the country since the end of apartheid, while Anglo was left stuck with no other strategy to offer. Shareholders.
The London-based mining company knew falling percentage costs could make it a target and had been discussing with its bankers for months how to protect against an unwanted offer. And yet, when BHP chairman Ken MacKenzie called his counterpart Chambers on April 16. , is still a shock.
The proposal would remain secret for another week, until a Bloomberg report forced Anglo to accept the proposal. From there, the clock started ticking: Under UK buying rules, a bidder has one month to make a company bid or pull out, unless the target to give it more time.
Read more: BHP abandons $49 billion bid after Anglo refuses to negotiate
This account of the failure of BHP’s ambitious plan to create a new copper mining giant is in talks with a dozen people close to the two companies, who asked not to be identified, discussing personal information.
From Anglo’s point of view, the biggest impediment to a deal has been BHP’s call for the company to first exit its platinum ore and iron ore units in South Africa, and the obvious rejection by the largest mining company in the country where Anglo was founded and where mining remains one of the largest. Employers and the state pension fund administrator are Anglo’s second-largest shareholder.
Go faster
But first the company needed a plan of its own. Investors were already frustrated by Anglo’s poor functionality and requested important points for the review of its ongoing activities for about a year.
Faced with a growing call to act faster and shareholders why they wouldn’t want to accept BHP’s offer, Wanblad and his team spent much of the second week of May fine-tuning the main points of the plan.
The CEO had intended to be in Miami on May 14 with almost all of his peers (including BHP’s Henry) for one of the industry’s most important meetings.
Anticipation preempted the event as the mining world eagerly awaited the opposition’s executive directors to take the stage. But Wanblad cancelled its plans at the last minute and opted to reveal Anglo’s new strategy from the company’s headquarters in London.
Read more: Anglo opts for breakup plan to fend off BHP
The scale of the restructuring has surprised and inspired investors, going beyond what many had anticipated.
So far, investors seem to be supporting the CEO. Anglo-Saxon shares reacted slightly to BHP’s pullback and remain well above the levels seen before the offer was made public.
But big questions remain about whether Wanblad and his team will be up to the task. And the last-minute nature of the plan has also left some investors uncomfortable. When Wanblad asked that day what he planned to do with a small manganese company in South Africa, his response seemed to be: we’re not there yet.
Video Calls
In the week that Anglo finalized its plan, the company won a second superior bid from BHP. Once again, the largest mining company has called for Anglo to first divest its stakes in Anglo American Platinum Ltd. and Kumba Iron Ore Ltd. Again, Anglo’s board of directors said no.
Only after a third proposal did the board indicate that it was in a position to discuss. BHP made its new offer on May 20 and Anglo agreed two days later to extend the deadline for the company to offer by one week. .
Optimism in BHP’s camp has grown about the possibility of a deal, especially after Anglo bankers contacted BHP advisers on May 23 to sign nondisclosure agreements.
But the promised talks were unsuccessful: last Friday’s video calls between advisers to both sides were forced and did not come to fruition. Anglo sent BHP a lengthy letter setting out its considerations on the potential loss of price for its shareholders as a result of the spin-offs, and the BHP team spent the weekend working before sending a final proposal with some additional commitments on South Africa. But Anglo had heard enough. By lunchtime on Wednesday, it was clear that the deal was done.
Anglo felt confident drawing the line based on conversations with its investors, other people familiar with the matter said. One of BHP’s main tactics was to try to put pressure on Anglo through the shareholders of the other company, but this strategy did not work. succeed.
The South African Public Investment Corporation issued a statement saying BHP’s proposal needed to be reworked, while BlackRock Inc. , Anglo’s largest holder, kept its letters secret.
Although the agreement never provoked public acrimony, resentment developed within both sides, with the two sides largely giving the impression of arguing in public. Most of the negotiations were carried out through advisors, in a totally virtual way. The respective presidents of the corporations have spoken on several occasions. Wanblad and Henry never met or spoke to each other.
Copper growth
The biggest draw of BHP’s failed bid for Anglo’s copper mines in Chile and Peru, at a time when all of the world’s biggest miners and their investors are bracing for a prolonged era of tightening of source and emerging steel prices.
According to the company’s plan, copper will be the central axis, along with the iron ore it produces in South Africa and Brazil.
Of the businesses Wanblad has promised to spin off, coal will likely be the simplest. Anglo’s steelmaking coal mines are highly sought after among its competitors, and Glencore Plc is among the likely bidders, according to sources familiar with the matter.
But the rest of the radical transformation turns out to be fraught with obstacles.
Anglo’s restructuring is “a seismic review of the company,” said Iain Pyle, a fund manager at abrdn, which owns Anglo shares. “It would possibly take patience to sell the less attractive assets in a way that creates value. “
Of all Anglo’s activities, De Beers is the biggest challenge. This former monopoly plays a very important role in the diamond industry, although its market share is only about 30%. In addition to the mines, it also has a retail network, a faux diamond production company, and its own luxury jewelry brand.
Read more: De Beers’ Anglo exit is a blow to the long-suffering diamond market
There are also few buyers of herbs. Competitors such as Rio Tinto Group once coveted the company, but now the industry’s big players have turned their backs on diamonds: the sale of De Beers is the most sensible of BHP’s unfinished business after its acquisition. Any deal will also take into account the government of Botswana, which owns 15% of De Beers.
The diamond market imploded last year and the company is looking for a recovery before considering selling. Despite his challenges, the internal view is that De Beers demands a price that reflects his prestige as a trophy asset.
Unable or unwilling
Wanblad will also oversee the distribution of Anglo’s stakes in Johannesburg-listed Amplats to the company’s existing investors, to complete its platinum exit. Anglo believes the split would escape scrutiny from South African antitrust authorities, which is one of its biggest considerations under the BHP deal. However, many Anglo-Saxon shareholders would probably not be able or willing to own stakes in the South African company, leading to an outflow of capital and likely a decline in percentage value at the beginning of Amplats’ independent life.
Perhaps the most debatable detail of Wanblad’s assignment is the decision to keep the giant fertiliser mine that Anglo is building in the UK, as it has slowed its spending on the site. Woodsmith’s commission, which reportedly charges a total of $9 billion, is unpopular with many investors because of uncertainties about the market and the amount of capital he absorbs from the company. The company needs to use a partner to reduce its percentage of expenses and risks.
Wanblad will have to reassure investors that he is the right leader to carry out such a radical reorganization of Anglo.
The CEO has already tested investors’ patience at times since taking the helm. Shareholders were furious that they were caught off guard in December by the sudden announcement that Anglo would cut copper production by 20%.
If Wanblad stumbles, BHP and others will most likely return and shareholders will be less forgiving.
“It’s possible that Anglo will continue to be a target, especially because of its copper assets,” Pyle said. “We may still see bidders return once Anglo has done some hard work to reshape the organisation itself. “
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