EDITORIAL: BHP’s failed Anglo bid shows up SA as flawed mining destination

Australian mining giant BHP has walked away from its bid to take over Anglo American for now. And while Anglo’s defence team can rightly take credit for some smart tactics, SA should not necessarily rejoice at the outcome.

BHP was probably arrogant or ignorant in not understanding SA’s particular sensitivities from the start. Indeed, SA’s sudden love affair with Anglo may have come as a surprise to many. But Anglo played the SA card as part of its defence from the start. And government ministers who so often have made life as difficult as possible for mining companies in SA and politicians with no love for big capital played along.

In theory it was Anglo and BHP’s shareholders, not the politicians, who had the power to make the deal happen or not. But any deal would have had to pass muster with regulators in SA as well as in multiple other jurisdictions. Many would have looked to their national interest. But in SA the public interest has become one of the key levers for competition regulators.

They have over the years insisted on ever more arduous and costly public interest commitments — in areas such as employment, empowerment, localisation and investment — as conditions for the approval of mergers, especially big cross-border mergers and takeovers. Anglo’s team made the most of that as a kind of “poison pill”, which in the end was a big factor in its successful defence against the BHP bid.

The complexity of BHP’s proposed deal structure in a regulatory sense was indeed unprecedented in SA. It would have required the parties to apply for competition approval — including negotiating public interest conditions — for three simultaneous, inter-conditional deals, including the unbundlings of platinum and iron ore as well as the main takeover deal.

Anything could and possibly would have gone wrong. Even if it had all gone smoothly, the conditions could and possibly would have been very costly for all involved. Anglo insisted BHP needed to compensate it or bear some of the risk.

Though BHP belatedly came in on Wednesday with a series of quite unprecedented three-year commitments to retain jobs, empowerment, localisation and so on in SA, the damage was done. Likewise on the “flowback” risk from the unbundling, which could cause big outflows from SA as London investors sold the Kumba and platinum shares they received in the unbundling.

Of course, Anglo’s own radical restructuring plan also involves the unbundling of Anglo Platinum (Amplats) and potentially of De Beers. It is believed this would not require competition approval as part of an internal restructuring rather than a takeover. But the “flowback” risks would be there too. And for SA, the Anglo restructuring plan is not necessarily something to rejoice at either given that all it might ultimately leave of the group in SA would be Kumba. Against that, there is at least BHP’s argument that setting a company such as Amplats free of its controlling shareholder would be good for SA, keeping dividends and investment at home.

The bottom line, however, is that this deal drama has shown up just how flawed SA is as a mining destination, and indeed a destination for multinational investment. The regulatory poison pill makes it extremely difficult to do deals here. That is not good for foreign direct investment into SA. Nor is the fact that big international mining companies and their shareholders are doing their best to reduce, rather than increase, their exposure to SA’s difficult mining environment.