Mining giant BHP Billiton is offering nearly $40 billion to acquire its British rival Anglo-American Resources Group, which will be the largest deal ever in the mining sector.
BHP Billiton said in a statement on Thursday that it values Anglo-American Resources Group shares at £25.08 ($31.4) per share, totaling £31.1 billion (US$38.9 billion). The company added that if the acquisition is completed, BHP Billiton will increase its access to copper reserves.
Copper is an important component of several renewable energy technologies, including solar panels and electric vehicles, as well as power grids. And demand is strong: since this year, the price of copper on the London Metals Exchange (London Metals Exchange) has risen more than 13% to nearly $10,000 per tonne, the highest level in about two years.
William Tankard, chief base metals analyst at CRU Group, said the “first and most important” proposed acquisition concerns copper.
According to GRU Group's analysis, BHP Billiton is the world's largest copper producer, while Anglo-American Resources Group is the ninth largest copper producer in the world. Tancard added that the merger of the two companies would be subject to scrutiny by global competition regulators.
According to Dealogic's data, the potential deal would be worth more than commodity company Glencore (Glencore)'s acquisition of Swiss Xstrata (Xstrata) for $38.3 billion in 2012. It will also be the mining industry's largest merger and acquisition deal since Dealogic began collecting data in 2004.
Anglo-American Resources Group said in a statement that the company's board of directors “is currently reviewing this proposal,” adding that it is “uncertain” whether BHP Billiton will make an official offer or determine the terms of this potential offer.
BHP Billiton must submit an official offer by May 22.
After the news broke, Anglo-American Resources Group's stock price soared 13.8%. By 10:20 a.m. EST, it was trading at £25.10 ($31.35). BHP Billiton shares in Australia closed down 0.6%.
BHP Billiton has been seeking to increase copper reserves for some time. A year ago, the Melbourne-based company bought Australian rival Oz Minerals to expand its copper and nickel supply channels.
BHP Billiton CEO Mike Henry said in a statement at the time that the acquisition of Oz was part of BHP Billiton's strategy to “meet the growing demand for electric vehicles, wind turbines, and solar panels for the critical minerals needed.”
CRU Group's Tankard called copper “an ubiquitous, future-oriented commodity.” “Whether we're talking about electric vehicles, data centers, or general electrification... we all have a common theme, which is copper.”
Bad news for London?
Anglo-American Resources Group is one of the largest listed companies on the London Stock Exchange, and the acquisition of BHP Billiton may heighten concerns about large-scale outflows from the London stock market.
Shell CEO Wael Sawan said last month that he believes the energy giant's listing in London “undervalues” the company and is comparing it to bigger rivals ExxonMobil and Chevron, which are listed in New York.
This has sparked speculation that the £186 billion ($232 billion) oil giant could leave London for Wall Street, a shift that would be a huge blow to major British stock exchanges. In recent years, several companies have moved their main listing locations to other locations or directly chose to list in New York.
Susannah Streeter (Susannah Streeter), head of capital and marketing at Hargreaves Lansdown (Hargreaves Lansdown), wrote in a report on Thursday that the acquisition of Anglo-American Resources Group “will bring a new chill to the City of London.” “There are concerns that if the deal succeeds, this may just be the tip of the iceberg, [which means] more giants may leave the London Stock Exchange.”