Melanie Burton
MELBOURNE (Reuters) – BHP Group (NYSE:) is likely to sweeten its $43 billion takeover bid for Anglo American (JO:) for a second time and possibly add cash, investors at both companies said on Tuesday after London headquarters announced the target rejected the higher bid.
Anglo said the improved all-share offer, which is 10% higher than BHP’s original offer, continues to significantly undervalue the company.
BHP shares traded 0.5% lower at A$43.03 on Tuesday.
BHP has until May 22 to return with a mandatory bid or walk away under UK takeover rules. The revised proposal again required Anglo to sell its shares in iron ore and platinum assets in South Africa, which Anglo said was unattractive.
“The language in the press release suggests this is not the best and final offer,” said Todd Warren, portfolio manager at Tribeca Investment Partners, which owns Anglo shares.
Anglo said on Monday it had accelerated its separate strategy and would update investors on Tuesday.
“The market is waiting with bated breath for details of Anglo’s strategic day. There is little Anglo can do to realize the immediate benefits that could be gained by accepting BHP’s offer,” Warren said.
BHP CEO Mike Henry is due to attend Bank of America’s global mining conference in Miami later on Tuesday.
Several Australian fund managers who own BHP shares spoke to Reuters ahead of his presentation on condition of anonymity due to the sensitivity of the matter.
One BHP investor said it would make sense for the miner to add a cash component to complete the deal, although the overall structure of the deal was complex, raising the risks of Anglo achieving acceptable prices for undesirable assets.
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A second BHP investor said he would be surprised if BHP did not come back with another offer, adding that he still had the option to add a cash component.
“That’s what we like,” the investor said. “I think investors are generally supportive of another proposal.”
Copper prices have risen 12% over the past six weeks and hit a two-year high on Tuesday, exceeding $10,200 a metric ton.
Anglo is attractive to its competitors due to its valuable copper assets in Chile and Peru. Demand is expected to grow as the world transitions to cleaner energy and the increased use of artificial intelligence will drive energy consumption. Copper is very efficient at transmitting energy due to its conductive properties.
Anglo’s withdrawal was disappointing but BHP found itself in a difficult position given the need to balance strong gains in copper prices with the need to maintain financial discipline, a third BHP investor said.
BHP’s latest offer of £27.53 per share, up from the original £25.08, will increase Anglo shareholders’ combined stake in the combined group from 14.8% to 16.6%. Anglo shares closed down 2.4% at £27.07 on Monday.
Analysts at Jefferies said the price may have to be raised above £30 per share to get approval from Anglo’s board.
“We’re just not sure BHP is prepared to go to that extent. This last sentence may be final,” Jeffries said.