A dragline moves overburden at Anglo American’s Dawson mine in Queensland, Australia. Japanese steelmakers have expressed concern about the consolidation of metallurgical coal production. (Photo: Anglo American)

Anglo American rejected a revised proposal from BHP to buy the company and then announced plans to break up the company. BHP said it was disappointed that Anglo’s board opted not to engage with it, and it continues to believe that the $43 billion offer would deliver significant value for all shareholders. Under the revised proposal, BHP increased the number of its shares that Anglo shareholders would receive to 0.8132 shares for each ordinary share they own in Anglo American. The structure of the deal remains the same and Anglo shareholders would also receive shares in the demerged Anglo American Platinum (Amplats) and Kumba Iron Ore. The revised proposal is non-binding and subject to customary conditions including completion of due diligence. BHP had until May 22, 2024, to make a formal offer or walk away.

“BHP put forward a revised proposal to the Anglo board that we strongly believe would be a win-win for BHP and Anglo shareholders,” said Mike Henry, CEO, BHP. “We are disappointed that this second proposal has been rejected. The revised proposal represents a 15% increase in the merger exchange ratio and increases Anglo shareholders’ aggregate ownership in the combined group to 16.6% from 14.8% in BHP’s first proposal.”

Aside from significantly undervaluing the company, the Anglo board said the latest BHP proposal continues to contemplate a structure which the board believes is highly unattractive for Anglo American’s shareholders, given the inherent uncertainty and complexity, and significant execution risks.

“The latest proposal from BHP again fails to recognize the value inherent in Anglo American,” said Stuart Chambers, chairman, Anglo American. “[It has] a highly unattractive structure. This leaves Anglo American, its shareholders and stakeholders disproportionately at risk from the substantial uncertainty and execution risk created by the proposed inter-conditional execution of two demergers and a takeover.”

Following the rejection of the revised proposal, Anglo announced plans to break up its business and focus on copper and crop nutrients. The company said it would spin off Amplats, divest De Beers (diamonds), and sell its metallurgical coal segments. It also said it’s exploring selling or suspending nickel operations.

Japanese steelmakers have raised concerns with Australian authorities that BHP could become too dominant in the global supply of metallurgical coal if the transaction proceeds, according to Reuters. Australia is the world’s largest met coal exporter and a top supplier to Japan, representing 60% of its imports. Most of the met coal originates from Queensland, where BHP and Anglo American are the two largest producers.

Anglo operates the Moranbah North and Grosvenor longwall mines. The company’s Dawson mine produces coal from three pits. The Capcoal complex has an open-pit mine and several underground mines.

Concerns about BHP’s coking coal segment could complicate the deal if the BHP comes back with a revised bid for Anglo.