If you are Anglo American now, courted as you are by the world’s largest mining company, BHP, what on earth do you do? It’s funny how often romance analogies are used in the process of corporate acquisitions, even as there is not the slightest iota of romance about this. For one thing, a bunch of highly paid Anglo managers are likely to be out on the street if the deal goes through. Spare a thought for Anglo’s fairly newly installed CEO Duncan Wanblad, who has just got his feet under the desk. 

In some ways, however, the comparison does work, because we talk about a marriage, a dowry and possibly even an examination of the undergarments (or at least peeping under the bonnet), and, in certain circumstances, rival affection. Just by the way, think for a moment about that “dowry”. As lobola goes, it’s pretty impressive. And as anyone who has worked for South African Breweries can tell you, there comes a point where it’s just ridiculous to say “no”.

Let’s assume that Anglo wants to retain its independence, which we can, since on Friday it gave the first indication that it does by formally rejecting BHP’s R730-billion offer. So, for the time being, the answer remains “no”.

The first question is: Why would we want Anglo to say “no”? I think the answer to that is simple: Anglo means something to the African continent. For all his other issues — and there are many — SA’s mines minister, Gwede Mantashe, nails it in a single swipe, as politicians often do. His response to the BHP bid was that the Australian company “never did much for South Africa”. 

But here is the problem: for his part, Mantashe never did much for Anglo, and I’m willing to bet that all the politicians who have castigated Anglo for years will miss the company when it’s gone. All the big mining houses distrust Africa, particularly South Africa, because they worry about forced sales, nationalisation, poor administration, terrible transport and all that stuff.  

For all its faults, Anglo is born of African soil and has tried to be at least partly loyal to the continent. For Africa, Anglo’s departure would mean being thrown to the tender mercies of the Chinese or, worse, the Russians. Big mines will not get built, even in places where they should, like Botswana and possibly Kenya and Tanzania.

Even the quasi-governmental control over Anglo, through the Public Investment Corporation, is now pretty small — about 7%. It is not even the biggest shareholder any more; the US giant BlackRock is, and third in line is Vanguard. The company is not called Anglo American for nothing.    

And there is the other problem: there is nothing Mantashe can do about it. Anglo is a British company now; the takeover is a matter for British law and largely British shareholders. BHP’s plan to require the disposal of Kumba and Amplats, very deliberately, takes the South African government out of it. Even if the Competition Commission could object, what local competitive issue would they be objecting to?  

It’s also worth noting what Anglo is up against if it wants to fight: it’s facing an adversary four times its size, with a better long-term track record, whose share price is riding very high. 

The first volley

And if you look at Anglo and BHP’s mining profiles, it does kinda fit for BHP. Both companies have iron ore assets and Anglo’s Brazilian iron ore would fold into BHP’s much larger business very easily. Anglo has “steelmaking” coal assets in Australia, which would also tuck into BHP comfortably. Anglo has some excellent copper assets, which of course is the underlying rationale for the deal, but it’s not as though BHP has none — it has plenty and, like Anglo, a whole bunch in Chile. 

So, the odds are against the suitor being rejected, but the battle is not entirely lost. Anglo has already fired the first volley, which is simply to say that the bride price is too low. All reluctant brides make this claim, but in this case, the claim is not as empty as it sounds. Anglo’s share price might have slipped recently, but if you compare share prices, the recent history is mixed. The point is that Anglo is trading at a forward price:earnings ratio of 15 compared with BHP’s 10.5, while the enterprise value of earnings before interest, taxes, depreciation, and amortisation (EV/Ebitda) of each member of the duo is pretty similar. 

BHP is trying to take over a company that, on the numbers, is run as well as it is. If you are going to do that, you need to demonstrate to shareholders not only that the assets will mesh but that somehow the sum of the parts will equal more than the current whole. And, in this case, that’s a tall order, mainly because there are no large areas of synergy; there will be some of course, but they are not huge. Being the huge, lumbering mass it is, neither can BHP justifiably claim economies of scale. The main justifications for big takeovers just don’t work in this case.

I don’t think shareholders will get more growth out of the combined company than they will out of the existing companies. And, in that case, for Anglo shareholders, it is all about the money and, frankly, a 15% premium is almost definitely not enough, even with the unbundled stakes in Amplats and Kumba. Would shareholders even want those? The declining share prices of both companies suggests not. 

But assuming BHP does up its bid to an acceptable level, what are Anglo’s choices then? Well, to stay with the romance theme, one possibility would be to look for a better possible partner, a white knight, as this entity is known in the trade. But this is complicated. Russian companies are off the table; Chinese companies much prefer unlisted assets and, anyway, it would be ironic for a Chinese company to buy a company with platinum interests, given the Chinese punt on electric cars.

A possible white knight that stands out is of course Glencore, complete with its young South African CEO Gary Nagle and South African-born major shareholder and former CEO Ivan Glasenberg. Glencore is also the half-owner of some of Anglo’s copper assets. However, Glencore has disavowed any interest in platinum. It’s also primarily a trading company rather than a mining company. I don’t know if that is a pro or a con, but the question is: Does Glencore want to go up against BHP? My guess is the answer is another “no” — but it’s not impossible. Miners are mavericks; they just are. 

There is one further option, which might be termed “nuclear”, and that is for Anglo, instead of unbundling Kumba and Amplats as BHP has suggested, to head in the opposite direction and buy out the stakes in both companies, something it should have done years ago. If it does that, then BHP will be bidding for a company that includes the very assets it does not want. 

This is the poison pill option, which is regarded in a prospective marriage situation to be slightly overly dramatic — kill yourself rather than walk down the aisle. Possible but, you know, extreme. Will the Anglo management have the courage to take that kind of stand? I don’t think so. Although, it must be said, shooting yourself in the foot is a very South African response to a difficult situation. DM