BHP and Anglo American face crunch as talks fail to progress

BHP and Anglo American have failed to make progress on terms for their £39bn mining megamerger, setting the stage for fraught final hours of talks before a deadline for negotiations expires on Wednesday.

Anglo American last week rejected BHP’s “final offer” but granted the Australian company another seven days to discuss the proposed takeover after a push from its big shareholders, including BlackRock.

Although the extension has led to the first meaningful engagement between the two sides since BHP made its initial approach in early April, the parties still fundamentally disagree on the deal structure after six days of talks, according to people familiar with the matter.

The impasse on the sequencing of the takeover, which requires Anglo to first spin off its stakes in its South African platinum and iron ore units, will make a deal by 5pm in London on Wednesday unlikely, the people said.

Under UK takeover rules Anglo could grant a further extension for talks to continue but its board was unlikely to do that unless a possible way forward emerged, one of the people said.

BHP chief executive Mike Henry has been meeting investors in London since Monday in a bid to increase the pressure on Anglo to extend talks again, a second person close to BHP said. Many large asset managers, such as BlackRock, hold shares in both companies.

Anglo and BHP disagree on the execution risks associated with demerging Johannesburg-listed Anglo American Platinum and Kumba Iron Ore before BHP would complete its takeover of London-listed Anglo.

Anglo says that making the takeover conditional on the twin demergers opens the door for the South African government to impose “change of control” obligations on Amplats and Kumba, such as employee ownership requirements or permanent restrictions on job cuts.

Such “public interest” concessions could weigh on the respective companies’ share prices, Anglo says, penalising its investors who under the proposed deal would receive stock in the demerged businesses.

Anglo had expected BHP to use the extension of the talks to propose solutions, such as offering to buy the whole company and demerge Amplats and Kumba later. BHP, however, has been adamant that it will not improve the share offer or alter the structure of the deal. 

“Unless BHP has shown it is willing to compromise on the structure, I don’t see how Anglo’s board can recommend this offer,” said one person close to Anglo American. 

BHP says that Anglo is overstating the execution risks as a defence strategy and has been unwilling to engage in an in-depth discussion of how each individual issue might be mitigated.

“What’s interesting here is Anglo hasn’t come out and said there is a fatal flaw to this transaction,” said one person close to BHP.

While South Africa’s competition watchdog has the discretion to demand concessions, the regulatory regime is clear and similar transactions have many precedents, the person added.

Anglo and BHP declined to comment.

Wednesday’s deadline, which was selected by Anglo, coincides with South Africa’s national election, adding an extra layer of political complexity. The vote is set be the most hard-fought since South Africa gained democracy in 1994 and South African politicians, notably mining minister Gwede Mantashe, have expressed opposition to the deal in recent weeks.

Several behind-closed doors meetings between executives from both companies and government leaders have taken place since, tempering the criticism. Mantashe, reached by the Financial Times on Monday, declined to comment.

Additional reporting from Lukanyo Mnyanda