BHP needs to sweeten Anglo bid, but extension boosts chances of agreement: RBC

Investing.com -- Anglo American (JO:AGLJ) rejected a third takeover offer from BHP, but its one-week extension for the company to make an improved offer likely increases the chances of a deal being agreed. 

Anglo American on Wednesday provided BHP with an extra week until May 29, to make an improved bid after rejecting the latter's third and improved takeover offer of £38.6 billion, or $49.18B. 

"This extension granted provides some room for negotiation something that in our view increases the chances of an agreement being reached," RBC added, though added that any offer would likely need to improved to account for the risks to Anglo of selling its Kumba and Amplats operations.

Given the execution risks involved in the divestment of Kumba and Amplats, we "believe AAL’s board will require a higher price and/or a change in the structure to recommend the offer," RBC said. 

The £29.34 per share revised offer has increased by about $6.8B on the original offer, RBC says, valuing Anglo American at at £31.11 per share, in deal that includes £9.63 per share for Kumba and Amplats and £21.48 per share for the remaining portfolio.

BHP's revised final offer likely factors in synergies in excess of $7B, plus operational recovery and the potential long-term growth projects from AAL’s key assets such as Los Bronces, Quellaveco and Collahuasi, RBC estimates, but likely represents "too much project and synergy execution risk."