BHP’s bargain? Expert thinks its ASX 200 takeover target could be worth 40% more

It’s been a big few months for S&P/ASX 200 Index (ASX: XJO) goliath BHP Group Ltd (ASX: BHP) and its $9 billion takeover target, copper miner Oz Minerals Limited (ASX: OZL).

The iron ore giant recently posted an improved acquisition bid that appeared too good for Oz Minerals to refuse. BHP now looks set to snap up the copper miner for $28.25 per share – nearly 50% higher than Oz Minerals’ last undisturbed share price.

But one expert believes the ASX 200 takeover target theoretically could have fielded bids as high as $40. So, has BHP scored a bargain? Let’s take a look.

Is BHP getting an ASX 200 copper bargain?

A takeover bid for Oz Minerals has been a long time coming, according to Shaw and Partners senior resource analyst Peter O’Connor. Speaking with Market Matters’ James Gerrish, O’Conner said the copper miner looked like a takeover target two years ago, continuing:

BHP are late-ish to the table in the short-term. In a long-term view, they’re probably still early. But I would have loved them to do this at some $20 per share.

Still, BHP could be getting an ASX 200 copper bargain. That’s when you compare the acquisition currently on the table to a similar takeover being conducted by Rio Tinto Limited (ASX: RIO).

Rio Tinto is in the throes of snapping up the entirety of Canadian-listed Turquoise Hill. It seems set to fork out $43 Canadian (around $47.17) per share for the company. O’Connor commented:

It’s like real estate James, when you’ve got your house in your street and you see a house sell down the road… you get a print on value… It’s the same with copper.

Copper [mergers and acquisitions] tells you what’s happening out there. So, the Turquoise Hill bid… implies a flow through value for Oz Minerals which is closer to $40 per share.

Fortunately for BHP, there is one factor keeping its takeover cheap. The expert said:

But what this particular deal lacks is contestability… they’ve leveraged up the best price they can get from one bidder.  

But that might not be the case for long. The transaction still has some notable hoops to jump through.

First, BHP will conduct due diligence on the ASX 200 copper miner. If its interest continues after it flips through the books, another party might wonder why. That could spur a competing bid from an interloper, O’Connor said.

Beyond the bid, the ASX 200 copper share was tipped to boast “the best management team in the copper market globally,” in O’Connor’s opinion. “I think what they’re buying is expertise,” the expert said.

The post BHP’s bargain? Expert thinks its ASX 200 takeover target could be worth 40% more appeared first on The Motley Fool Australia.

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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