BHP asks Anglo American for more time to get its deal across the line

BHP has asked for more time to hash out the terms of a potential mega-merger with Anglo American today after pledging a set of ‘social investment’ initiatives in the hope of clearing a key obstacle to the deal.

Just hours ahead of its deadline to make a firm offer for its peer at 5pm today, BHP told the market it had asked to extend the talks to allow both sides to evaluate the merits of a merger.

BHP’s latest £39bn for Anglo American was rejected last Wednesday but the Aussie-listed group has now pledged to roll-out a series of investment intitiatives designed to assuage the fears of the South African government over the impact of the deal.

Among the pledges are a “Mining Centre of Excellence” to support research and development and “promotion of South Africa as a premier mining destination” and a three-year promise to maintain the current employment levels at Anglo American’s Johannesburg office.

“BHP is confident that the measures it has proposed to the Board of Anglo American provide a viable pathway to resolve the matters raised by Anglo American and would support South African regulatory approvals,” the firm said in a statement.

The main obstacle to talks progressing has been a condition that the London-listed miner sell its Kumba operation in South Africa, where it employs some 40,000 people. Suggestions of the move have unsettled South Africa’s Public Investment Corporation, Anglo’s biggest shareholder with a stake of around 24 per cent.

Anglo is expected to publish a response to BHP’s request later today.

BHP claimed its promises would provide greater economic benefits to South Africa than Anglo American’s Accelerating Value Delivery plan, which the latter group outlined shortly after BHP’s initial approach.

As BHP has rounded with three bids for the company, Anglo has been canvassing support from shareholders for its own break-up plan that will see it sell or demerge its 85 per cent stake in its mining operation De Beers and platinum business Amplats.

The latest request comes after three rejected bids from BHP in an increasingly fractious takeover effort. Fears have spread in South Africa over the impact of any deal and JP Morgan analysts predicted that the deal could lead to outflows of $4.3bn from South Africa and weaken the rand.

While BHP has already offered to bear the brunt of the demerger costs, including a possible $2bn of capital gains taxes and lost $12.5bn of market cap, Liberum analysts say shareholders will still have questions over the structure of the proposed.

“The deal success now boils down to whether BHP can mitigate the risk of the proposed structure for Anglo American shareholders,” Liberum said.

Analysts at the investment bank Peel Hunt described BHP’s retention of the deal structure as “apparently dogmatic” and said it felt a “little bit too cute to be sustained deep into ‘real’ deal negotiations”.

This is a developing story.