‘Project Badger’: how BHP’s bid for Anglo American unravelled

Two weeks after launching a bid for Anglo American, BHP chief executive Mike Henry broke with his reputation for meticulous planning and in early May jetted to Cape Town before rushing on to a flight to Johannesburg.

The 58-year-old Canadian was on a mission to head off the furious political backlash unleashed by his plan to buy London-listed Anglo, with the exception of its South African operations. But the country’s president, Cyril Ramaphosa, campaigning ahead of elections, was too busy to meet.

On Wednesday, as South Africans went to the polls, Henry finally admitted defeat in his quest to pull off a £39bn deal that would have handed BHP Anglo’s coveted copper assets and positioned the group as a major winner from the global shift to green energy.

While Melbourne-based BHP sweetened its all-share bid twice, a deal ultimately proved elusive because the miners remained at loggerheads over the risks and costs of demerging Anglo’s South African platinum and iron ore divisions.

The polite language stuck to in official statements belied the increasing rancour of the six-week-long takeover battle. According to protagonists from both sides, Anglo bristled at its suitor’s perceived hubris while BHP was infuriated by Anglo’s intransigence.

But even a failed deal will leave its mark on a mining industry that has shunned megamergers for a decade. It has highlighted the scarcity of copper, a metal whose use in electric vehicles, data centres and power lines puts it at the heart of the energy transition.

“As soon as the BHP bid got announced it lifted the whole sector and that’s not going away any time soon,” said Ben Davis, a mining analyst at Liberum. “It’s absolutely shone a spotlight on resource scarcity” and the challenges in increasing the world’s copper supply, he added.

It leaves Anglo chief executive Duncan Wanblad under pressure to deliver the ambitious restructuring, including selling its De Beers diamond business, that he pitched to shareholders as a superior alternative to selling the 107-year-old company.

“Anglo needs to walk the walk on its new strategy,” Richard Hatch, an analyst at Berenberg, said of the miner that has been regarded as a takeover target since a December profit warning sent its shares plunging.

BHP resisted bidding for Anglo in the immediate aftermath of the warning for fears it would look opportunistic, said people familiar with the matter. But towards the end of last year, Anglo picked up on an increase in traffic to the website by BHP staff, another person familiar with the matter said.

Anglo and BHP declined to comment.

BHP made its move on April 16 when chair Ken MacKenzie rang his Anglo counterpart Stuart Chambers — who had overseen the sale of three major UK businesses Arm, Pilkington and Rexam — to inform him of his company’s interest and that a detailed proposal would be arriving.

When news of the takeover approach leaked late in the London day on April 24, BHP was caught off guard. Senior executives in Melbourne woke to the news on Anzac Day — an Australian national holiday equivalent to Remembrance Day — and the company only issued its first statement about 10 hours later.

The revelation of the bid — codenamed “Project Badger” within BHP — immediately raised the stakes. Wanblad, a South African and Anglo lifer, showed the company’s close ties to Pretoria by securing what he called a “long” meeting with Ramaphosa.

BHP, in contrast, was forced to sever ties with its communications adviser Brunswick, which has a large South Africa business and chose to work on Anglo’s defence.

None of which dented BHP’s confidence. After the first bid, the mood within Anglo’s ranks was low, said a person familiar with the matter, who likened it to a feeling of presiding over the company’s final days.

In the middle of May, Henry flew to Miami to attend the Bank of America mining conference, a fixture in the industry’s calendar. The power struggle between the companies dominated.

Henry and his team held 71 investor meetings at the two-day conference as he tried to drum up support. Wanblad chose to skip the conference, informing investors at 5.30am on the first day that meetings scheduled were cancelled and instead gave an address by video link.

While some shareholders were irked, Wanblad took the chance to sell the takeover defence Anglo had recently announced: a plan to sell De Beers and spin off its platinum business in what in effect amounted to a break-up of the group. It would, instead, focus on copper, iron ore and fertiliser.

“The market got a bit of a shock in terms of how bold” the break-up plan was, one Anglo executive said of the defence plan, which was codenamed “Project Jupiter”. “We had a lot of investors give positive feedback on where the new Anglo American gets to.”

But some Anglo shareholders, including its largest, BlackRock, encouraged the board to engage with BHP on whether the hurdles to a deal could be surmounted. After BHP sweetened its offer a second time to £39bn, Anglo relented: the price was still too low to accept but high enough to agree a week of talks starting on May 22.

Needing to keep his own shareholders onside, Henry refused to budge on his insistence that Anglo demerge its South Africa-based Anglo Platinum and Kumba Iron Ore operations but outlined other measures intended to reduce the risks associated with the spin-offs.

Talks between the two sides, however, remained limited, leading to a view inside BHP that Anglo had little interest in making a deal work.

On Tuesday, with just over 24 hours remaining before BHP had to either make a formal offer or walk away, BHP chair MacKenzie wrote to Chambers recapping the measures the group said would mitigate some of the risks and requesting a further two weeks of talks, said a person familiar with the situation.

As late as Wednesday morning, Henry thought Chambers was under pressure to grant the extension and was surprised when Anglo shot down the request.

With the copper price trading near a record high, the mining industry is braced for more dealmaking as the land-grab for the metal intensifies and the likes of Rio Tinto, Glencore and Freeport race to secure more of the metal.

“We are in a position where we are going to go through industry consolidation,” said Berenberg’s Hatch.

While the fight has been bruising for Henry, some shareholders welcome the fact he remained disciplined on price and steadfast on the structure of the proposed deal.

But for Wanblad, the clock has just started ticking. US activist investor Elliott has amassed a 3.5 per cent stake in the miner, adding to the pressure to deliver.

“The company’s recent simplification plan could unlock significant value over the next 12-18 months,” said Andrew Snowdowne, a fund manager at Sanlam Investments, which owns 0.6 per cent of Anglo. “If the share price does not re-rate despite these measures, we think the likelihood of another takeover offer from a major miner is high.”

But as both companies try to draw a line under the past six weeks, a person familiar with the negotiations warned a future suitor would have to write a bigger cheque to capture Anglo.

“A benchmark has been laid,” they said. “If someone wants to come in, they know there is a far higher bar.”