BHP’s Anglo American pursuit starting to look expensive: Morningstar
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The news: Morningstar has trimmed its fair value estimate on BHP citing the possibility that the resources giant may have to further improve its offer for miner Anglo American.
The numbers: The research house cut its fair value estimate on BHP by 1% to $40 a share, a day after Anglo American Board rejected an improved $64.4 billion takeover offer from BHP.
BHP shares were up nearly 3% at $44.41 in early trading on the ASX.
The context: Morningstar analyst Jon Mills said in a note that BHP’s increased proposal is already at an 11% premium to his fair value estimate for Anglo American of £20.80 ($39.52) a share. However, if a deal is to be done, it will likely require an even higher offer from BHP or another suitor, he said.
Speaking at a conference in Miami on Tuesday, BHP CEO Mike Henry said that it was up to investors to decide on whether the BHP or Anglo American management team would be better positioned to reap value from the companies’ respective restructuring plans.
BHP, which lobbed its initial offer in late April, has said the merger would unlock significant synergies by bringing together two highly complementary, world class businesses, including Anglo American’s significant copper output, which is used in everything from electric vehicles and power grids to construction. A deal, if successful, would be the largest mining takeover globally in 2024 so far and would rank among the top 10 largest deals ever for the sector.
What they said: “We think there is a roughly 50% chance that BHP lobs a higher proposal by next week’s deadline and we will update our fair value estimates for Anglo American accordingly by about 8% to £22.50," Mills said in a note.
"This assumes a 25% chance that BHP increases its proposal by another 5% and a 25% chance that BHP increases by 10%."
The source: Morningstar research
