Shares in Anglo American have risen following news of a £31.1billion takeover bid from industry giant BHP Billiton, potentially setting the stage for a colossal mining merger.
Anglo American's stock value leapt up to 14% in Thursday morning's trading session after the company disclosed that it had received an "unsolicited" and "highly conditional" offer from Australia's BHP the largest mining company in the world. The London-based miner confirmed that its board is currently poring over the proposal with its financial advisers.
Should the deal proceed, it would strike another blow to the London stock exchange by stripping it of one of its heavyweight listings as Anglo American would depart the premier league of shares. BHP has proposed a bid of £25.08 per share, which breaks down into £4.86 worth of Anglo Platinum shares and £3.40 in shares of Kumba Iron Ore.
The acquisition would catapult the combined entity to the position of the world's top copper producer, commanding about 10% of the global market. This move would significantly enhance BHP's footprint in the booming copper sector, which is experiencing heightened demand due to the transition to green energy, while also expanding its reach into potash and Australian coking coal.
Copper's importance is on the rise, given its critical role in renewable energy infrastructure and electric vehicles. A merger between these two giants would represent one of the most significant transactions in the mining industry in years, harking back to the Glencore-Xstrata merger completed in 2013.
Anglo revealed that under BHP's proposed deal, it would need to spin off two of its entities - its platinum business, Anglo American Platinum and Kumba Iron Ore, both listed in South Africa. BHP noted that after the agreement, a strategic review would be conducted on other "high quality operations, including its diamond business".
BHP stated: "The combination would bring together the strengths of BHP and Anglo American in an optimal structure. Anglo American would bring its assets and long-term growth potential."
"BHP would bring its higher margin cash generative assets and growth projects along with its larger free cash flows and stronger balance sheet. Anglo American has a deep pool of talented people who would continue to make a valuable contribution to the successful operation of Anglo American's assets within the combined group."
Investment platform AJ Bell remarked that the London market was "shrinking fast", as this possible mining deal marked the second FTSE takeover proposal this year, following the buyout agreement of packaging group DS Smith by a US rival.
Dan Coatsworth, investment analyst at AJ Bell, said: "It's crisis time for the London Stock Exchange as it fights to preserve the integrity of the UK market."
Chief market analyst at Finalto, Neil Wilson pointed out that this follows a heavy tumble of Anglo shares. "Anglo has not had a great year the rally this morning has erased the losses of the last 12 months, just," he said. "Clearly, competition authorities would take note due to the position in copper a combined company would have. If BHP doesn't make it work, others may try."