“The London stock market is shrinking fast as companies are either taken over, switch listing to the US or delist to get out of the public’s eye. It’s crisis time for the London Stock Exchange as it fights to preserve the integrity of the UK market,” says Dan Coatsworth, investment analyst at AJ Bell.
“It’s also ironic that London Stock Exchange’s shareholders vote today on whether to double chief executive David Schwimmer’s maximum pay just hours after we had the second FTSE 100 takeover approach this year. He needs to find a way to replenish the pot of companies on the London market if the takeover machine moves into overdrive.
“Last year’s takeover spree focused on smaller companies. This year, the focus has shifted to larger ones and the top tier M&A spree recently kicked off with a bid battle for FTSE 100 packaging group DS Smith. Now we’ve got the mining sector reverting to old habits and chasing mega-mergers.
“Anglo American was a sitting duck after the sharp decline in its share price last year. The firm saw its market value shrink by 39% in 2023 due to operational setbacks, weaker commodity prices and downgraded production guidance. That provided an opportunity for a larger rival to pounce on the business, taking a long-term view that its assets have considerable value and any short-term operational issues can be fixed. BHP has been the one to step up to the plate.
“Miners have a nasty habit of chasing acquisitions precisely at the wrong time, often striking deals at the top of the market. They get dollar signs in their eyes when commodity prices are rallying and often end up over-paying for acquisitions. It’s therefore instructive to note the recent rally in the copper price, now trading at a two-year high.
“BHP has a clear idea what it wants from buying Anglo American – exposure to large, low-cost and long-life assets in iron ore, metallurgical coal, potash and copper. Scale matters in the mining sector and Anglo has the right kind of assets to keep BHP generating big bucks for decades into the future.
“We might be moving to a more environmentally friendly world, but renewable energy and electric vehicles all require metal components, and a growing global population is putting pressure on food supplies which means farmers will lean more on fertilisers such as potash to increase crop yields.
“Buying Anglo American would mean BHP also inherits large exposure to the diamond sector via a big stake in De Beers, yet it seems there is no sparkle in management’s eye for such assets.
“The diamond industry has struggled in recent years due to competition from lab-grown diamonds and the higher interest rate environment hurting luxury goods demand. There were already murmurings that Anglo might demerge its stake in De Beers, and that also seems a logical route for BHP if it becomes the (short-term) owner.
“Certain platinum and iron ore assets won’t even make it through the front door if BHP is successful with its takeover, as they will be given to Anglo shareholders as part of the broader deal.
“BHP buying Anglo American would mean the UK-listed large cap mining sector shrinks even further. There is a positive effect if that happens as it could change the way the London market is perceived from an industry breakdown.
“Currently, there is a misconception that the FTSE 100 is full of old economy industries and is stuffed with miners – this is no longer the case. BHP gobbling up Anglo American would leave Rio Tinto and Glencore as the only diversified miners left in the FTSE 100. Remember that BHP ceased to qualify for the FTSE indices when it made Australia its main stock listing two years ago.”