BHP and Oz Minerals breakdown: A sense of takeover urgency, low due diligence risk

BHP (ASX: BHP) raised its takeover offer for Oz Minerals (ASX: OZL) by 13% last week to $28.25 cash per share. The offer was enough to woo the Oz Minerals' board to unanimously recommend the revised proposal after due diligence is complete.

UBS breaks down the takeover offer and what it means for both companies.

'A sense of urgency'

"BHP has remained patient in revising its bid, allowing Oz Minerals to work through major releases [and] de-risking events," said UBS analysts in a note last Friday.

These events include the company's first-half FY22 results, the final investment decision for West Musgrave and September quarter production figures.

"A recent shift in China's macro policy has improved sentiment for copper demand in the short term and may have revived a sense of urgency into BHP's offering of a revised bid," the analysts said.

Earlier this month, China announced 20 measures to optimise its covid policy and sweeping 16-point rescue package to support its beleaguered real estate sector.

Leveraged for renewables

"BHP's strategic rationale behind the acquisition relates to increasing "future facing commodities" exposure," said UBS analysts.

Oz Minerals is currently producing approximately 125,000 tonnes of copper, which includes 55,000 tonnes from Prominent Hill and 60,000 tonnes from Carrapateena.

Through the Carrapatenna block cave expansion and ramp up of West Musgrave, production is expected to rise to mor than 200,000 tonnes per annum by FY28.

"There are potential synergies (corporate, procurement and operational) that may be realised due to the regional consolidation. In particular we note opportunity at Olympic Dam, which has struggled under BHP's ownership," said the investment bank.

"We await further colour on potential synergies."

Due diligence low risk

UBS views the due diligence process as low risk given the Oz Minerals Board have already expressed their intentions to recommend the proposal.

The analysts believe it's unlikely that a superior offer will emerge, saying 'who would take on the world's largest miner in its backyard and without any synergies.'

UBS notes a successful takeover might impact BHP's FY23-24 returns, given the offer is 100% cash.

Although the company's net debt should remain within its target range of US$5-15bn. That being, an estimated US$3.8bn pre-takeover and approximately US$12.1bn post.

The investment bank remains Neutral rated on BHP shares with a $35.50 target price and Neutral rated on Oz Minerals with a $28.25 target price.