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South Africa’s antitrust regulator has warned it will have the last word on whether a takeover of Anglo American by its larger rival BHP can go ahead, underlining some of the hurdles the world’s biggest miner is facing in the country.
After UK-listed Anglo last week rejected a £31bn approach, BHP sent a team led by chief executive Mike Henry on a charm offensive to South Africa, where Anglo was founded in 1917 and still operates iron ore, platinum, diamond and manganese mines.
While the government is unlikely to stand in the way of a deal if it is approved by shareholders, South Africa’s independent antitrust authority, the Competition Commission, said that “a mandatory merger notification will be required where any transaction involves the change of control over the business of Anglo in South Africa”.
The commission typically follows a two-pronged inquiry: first, whether the deal would reduce competition in South Africa, and whether it is justifiable on “public interest” grounds — a broad brush that includes the impact on a sector, on jobs, on historically disadvantaged South Africans, and the ability of industries to compete globally, spokesperson Siyabulela Makunga told the Financial Times.
However, he said since no deal had yet been tabled, he could not “provide any definitive views” on what role the Competition Commission would play.
BHP’s preliminary offer, which is conditional upon Anglo divesting its Johannesburg-listed subsidiaries — iron ore miner Kumba, and Anglo American Platinum — has angered politicians in South Africa. Mining minister Gwede Mantashe told the FT last week he was personally opposed to a deal. State entity Public Investment Corporation is a major shareholder in Anglo.
David Masondo, South Africa’s deputy finance minister, told the FT that the government would not block a deal even if they do not like it: “We don’t even have the capacity to do that . . . It is going to be the decision of the shareholders.”
But Peter Major, a veteran mining analyst in South Africa, said that the government could still make it very difficult. “I don’t think BHP wants Anglo bad enough to get bogged down and fight for a year,” he said.
Django Davidson, a partner and portfolio manager at Hosking Partners, which oversees $6bn, including nearly 1 per cent of Anglo American, described BHP’s offer as a “comedy” and “offensive” to the South African government.
“BHP has made it very clear in its announcement, which was very blunt, that they wanted nothing to do with the South African assets. Given that Anglo American at its heart is a South African mining house, [this] is quite offensive,” he said.
With Henry’s team on the ground, BHP sought to limit the damage, saying on Thursday that its proposed structure “does not reflect a view on South Africa as an investment destination” but was based rather on “portfolio and commodity considerations”.
Asief Mohamed, chief investment officer at Aeon Investment Management, which manages investments in BHP and Anglo, said the competition commission would likely “scrutinise the potential loss of white-collar jobs in South Africa, which Anglo American could leverage as a defensive tactic”.
In the past, South Africa’s competition authorities have used this “public interest” clause in the legislation to wring concessions out of large companies that have bought iconic South African groups before getting the green light.
This includes Anheuser-Busch InBev’s $106bn takeover of SABMiller in 2016, Walmart’s $2.3bn purchase of Massmart in 2012, and Heineken’s $2.5bn takeover of Distell last year.
Michelle le Roux, a lawyer who acts frequently in South African competition cases, said these concessions have typically included a commitment not to cut jobs at the lower rungs, a pledge to buy from local suppliers, promises to boost black economic empowerment and introduce employee share schemes.
“In the case of Anglo, were such a deal to go ahead, its profile would probably attract several groups that would want to intervene and their participation could delay approval,” said Le Roux.
It can take up to three years for South Africa’s antitrust authorities to give a deal the green light, she added.
“These deals ultimately do get approval, the question is how long it takes and with what conditions attached,” said Le Roux. “The public interest conditions are where we see non-commercial, even ideological, concerns manifest, and that can make everything a lot more onerous.”
