BHP’s lunge for Anglo American is a strange, complicated takeover ploy that may cost it a lot in the long runSince it is easier to buy mines than endure the pain of building them in remote parts of the planet, bidding wars often break out for mining companies that come into play. A few of them, such as the global free-for-all for Canada’s Falconbridge and Inco nickel producers about 18 years ago, turn into epically long, expensive, nasty – and entertaining – exercises in subterfuge and hubris.
.’s JPMorgan for advice. Typically pugnacious Glencore is probably plotting mischief of some sort. The only near-certainty at this stage of the game is that BHP will raise its bid for Anglo, since Anglo summarily dismissed the opening pitch as mean. Anglo’s copper-to-diamonds diversity, its South African exposure and recent production problems make it a complicated beast that investors have not loved in recent years. BHP’s all-share bid, which was pitched at a 31-per-cent premium, is equally complicated. The offer, which has yet to be made formal, is conditional upon Anglo spinning off its control stakes in two South African companies, Anglo American Platinum and Kumba Iron Ore.
Take Anglo’s De Beers diamond company. BHP has no interest in diamonds and would surely sell it. While De Beers has a fine global brand anchored by the unforgettable “A Diamond is Forever” line, it would not be an easy sale, since much of its production is in Africa, a big negative for some mining companies that equate the continent with instability. The company generates scant free-cash flow and faces a competitive threat from synthetic diamonds.