BHP's merger miasma

BHP shareholders heaved a sigh of relief at last week's headlines that the company had abandoned its ambition to acquire Anglo American, the global miner that represents the rump of the once-mighty Oppenheimer empire. 

BHP's spurned third-and-final offer was reportedly worth US$49 billion ($75 billion), a massive premium to the poorly-managed Anglo-African company which was capitalised at less than US$30 billion prior to merger speculation boosting its price.[[More than half of Anglo American's employees are based in Africa.]]

While in his surrender speech BHP managing director Mike Henry reserved the right to launch a hostile bid for Anglo in the event that another bidder did so first, the reality is that Anglo has convinced most of its shareholders that better value can be realised through a merger with Canada's Teck Resources. Shareholders of Anglo and Teck meet on December 9 to approve the merger, a deal that will fortuitously preserve C-suite jobs for most of the current Anglo American management team. BHP was definitely not offering jobs for the boys, so was always on the back foot.

If both sets of shareholders approve the deal, requiring two-thirds of voting shares in favour, the Anglo-Teck merger is done. As the deal terms are extraordinarily jammy for Teck shareholders – they provide 26 per cent of pre-merger earnings but end up owning nearly 38 per cent of the shares – it's hard to see the Canadians turning it down.