- Anglo says offer significantly undervalues the company
- BHP shares close 4.6% lower in Australia
- Some investors say higher price needed to seal a deal
- Anglo shares rise 5.7% on Elliott stakebuilding
LONDON, April 26 (Reuters) - Anglo American rejected rival miner BHP Group's 31.1 billion pound ($39 billion) takeover proposal on Friday, saying the bid significantly undervalued the London-listed company and its future prospects.
Australia's BHP, which has until May 22 to make a binding bid, is expected to sweeten its offer to try to clinch a deal that would create the world's biggest miner of copper, a metal central to the clean energy shift, accounting for about 10% of global output.
Anglo's London-listed shares were trading 5.7% higher at 27.04 pounds by 1303 GMT. Activist fund Elliott has built a $1 billion position, according to a person with knowledge of the stake, which buoyed the stock.
Anglo said the complex structure of the deal created uncertainty and that it was well-positioned to create significant value from assets aligned with the energy transition and other major demand trends.
The company started a strategic review of its assets in February in response to a 94% fall in annual profit and a series of writedowns caused by lower commodity demand.
"The BHP proposal is opportunistic and fails to value Anglo American's prospects, while significantly diluting the relative value upside participation of Anglo American's shareholders relative to BHP's shareholders," Anglo Chairman Stuart Chambers said in a statement.
Reuters reported on Thursday, citing two sources, that Anglo's management did not consider the proposal attractive, and analysts and investors on Friday predicted BHP would come back with a higher offer.
"With regards to a price, I think it's pretty clear that the initial shot fired is just that," said Todd Warren, a portfolio manager at Tribeca Investment Partners in Sydney, which holds shares in Anglo. "We would need to see more money on the table before we sold our shares."
BHP's shares closed 4.6% lower in Australia on Friday. The world's largest listed mining company on Thursday offered Anglo's shareholders 25.08 pounds per share, a premium of 31% to Wednesday's market close.
Copper prices in London hit a two-year peak above $10,000 a metric ton on Friday as fund buying intensified.
SOUTH AFRICA CONCERNS
A condition of BHP's proposal is that Anglo first distributes to shareholders its stakes in Anglo American Platinum (Amplats) and Kumba Iron Ore, both of which operate in South Africa where BHP has no assets.
A source familiar with BHP's thinking said those assets would be better managed locally. BHP got rid of its smaller assets through a demerger years ago to focus on higher-volume commodities.
Kumba is hobbled by a failing logistics network and Amplats faces lower metal prices and falling demand. Amplats said in February it was embarking on a restructuring that could affect about 3,700 jobs.
Any exit by Anglo, which was founded in Johannesburg in 1917 and employs more than 40,000 people in South Africa, would be a further economic blow to the country, which has seen the platinum it mines fall out of favour. South Africa's Public Investment Corporation (PIC) holds 6.99% of Anglo American, according to LSEG data.
South Africa's government is scrutinising BHP's proposed offer, which comes weeks before a general election in which voter anger about a stagnant economy and high unemployment could cost the long-governing African National Congress its majority.
On Friday, Impala Platinum announced it could cut 3,900 jobs in South Africa due to lower metal prices.
BHP investors may also have concerns about the merits of the deal as it faces different regional jurisdictions and some Anglo American businesses are lower margin than BHP's, analysts said.
"It's not clear how BHP adds value to the deal if it is required to offer considerably more," said Brenton Saunders, a portfolio manager at Pendal, commenting on the complicated structure of the deal.
BHP CEO Mike Henry and executives including Chief Financial Officer Vandita Pant will be briefing investors next week, fund managers said.
A deal, if successful, would be the largest mining takeover globally in 2024 and in the top 10 largest deals for the sector ever, according to LSEG data.
The mining sector has seen a mergers and acquisitions rush as companies seek more exposure to metals needed for the global energy transition, and further consolidation could follow if this deal goes through.
Aside from South Africa, attention was also drawn to potential antitrust hurdles BHP might face in China, the world's biggest buyer of copper, and in Japan and India, which take its steel-making coal.
Glencore was forced to sell its interest in Xstrata's Las Bambas copper project in 2013 to clear a hurdle set by Chinese regulators for its $35 billion deal.
Reporting by Clara Denina in London, Melanie Burton in Melbourne, Scott Murdoch in Sydney; additional reporting Archisma Iyer; Writing by Miyoung Kim and Elaine Hardcastle; Editing by Sonali Paul, Neil Fullick, Jamie Freed and Catherine Evans
Source: Reuters