Jefferies downgrades to Hold as $49 bln BHP offer falls through By

0– Anglo American PLC (LON:) was downgraded by Jefferies after a takeover attempt by mining giant BHP Group Ltd (ASX:) fell through this week, with the brokerage citing potential risks as the miner undertakes a major restructuring. 

Jefferies downgraded Anglo’s London shares to Hold from Buy, and also cut the stock’s price target to 2,700 pence from 3,200 pence. The new PT represents an upside of about 9% from current levels. 

BHP dropped its $49 billion bid for Anglo this week after the London-listed copper miner rejected a last-minute request for more time to hash out a better deal. 

The key point of contention in the deal was BHP’s demands that Anglo offload its South African platinum and iron ore businesses, which Anglo found problematic. 

Jefferies analysts said that Anglo must now execute its own proposed restructuring, which includes a demerger of the South African business, a sale or spin-off of its De Beers diamond unit, a sale of its metallurgical coal business and a review of its nickel business. 

While the demergers and reviews do represent potential value, with Jefferies predicting a potential share price of 30.77 to 32.59 pounds from the de-mergers, it largely depends on Anglo’s ability to execute the restructuring without “significant value leakage.” 

De Beers presents the greatest risk, given that the diamond unit could be sold or spun-off at a much lower valuation, which could also be the case for the metallurgical coal unit. 

A demerger of Anglo’s South African assets is also expected to be rife with political and financial complexities, given that the assets face high regulatory risk in South Africa. 

Jefferies’ downgrade of the stock was based on these risks, with the brokerage forecasting that Anglo’s restructuring will likely take longer than expected, at least 18 months. 

But Jefferies analysts said they still expected a “considerably higher share price” from Anglo in the long-term. 

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