Investing.com -- Anglo American’s stock fell over 5% on Monday following reports that BHP Group (NYSE: BHP ) is unlikely to pursue a renewed takeover bid.
Analysts at J.P. Morgan noted that BHP's hesitation stems from the steep rise in Anglo’s share price, which has rendered the potential acquisition less financially viable.
J.P. Morgan said that Anglo’s current share price of £25.36 reflects a 10% premium to its standalone fair value of £23.03 per share, incorporating an M&A premium that could be at risk of erosion if BHP steps back entirely from the deal.
The Financial Times initially reported that BHP had “cooled” on revisiting a bid for Anglo American (JO: AGLJ ), citing the latter's surging valuation as a key obstacle.
While BHP retains the flexibility to launch another bid in the future, following the expiry of its UK "put up or shut up" takeover deadline in November 2024, the immediate prospects for a renewed attempt appear dim.
BHP has stated its commitment to disciplined capital allocation and a cautious approach to acquisitions. They prioritize value creation over rapid expansion. This was reaffirmed after their FY2024 results, with the CEO emphasizing that they will pursue acquisitions opportunistically.
J.P. Morgan points to a strategic recalibration by BHP. Despite the strong economic and strategic logic of a BHP-Anglo merger—especially given Anglo's high-quality copper and iron ore assets—the elevated valuation, coupled with BHP's recent underperformance relative to peers like Rio Tinto (NYSE: RIO ), has likely weighed against proceeding with a higher offer.
BHP’s shares have underperformed Rio Tinto by approximately 6% since May 2024, when the initial deal discussions were terminated.
Anglo American’s stock had outperformed BHP by 16% since the breakdown of negotiations last year, supported by the speculative M&A premium.
However, with the M&A outlook now uncertain, J.P. Morgan predicts a potential reversal in this trend.
Anglo’s planned restructuring, including the divestment of its diamond and nickel businesses and a demerger of Anglo Platinum assets, further adds layers of complexity to the valuation.
J.P. Morgan maintains a “neutral” rating on Anglo American, with a price target of £23.10 per share.
The brokerage also flags additional risks, including potential asset impairments of approximately $2 billion and weak updates on diamond divestments in the upcoming FY2024 results.