Is Anglo American deal a ‘game changer’ for shares?

The re-rating potential of Anglo American (LSE:AAL) amid the synergies and growth upside of its copper-focused merger with Teck Resources Ltd Ordinary Shares - Class A (New) (TSE:TECK.A) today gave a fresh lift to its shares.

UBS reiterated its Buy recommendation and Jefferies raised its target to 2,800p, representing a further upside of 10% on top of the 12% share price increase since Tuesday’s deal.

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Panmure Liberum called the merger of equals a significant coup, which if successful would see Anglo Teck jump the global copper rankings to fifth behind Codelco, BHP Group Ltd (LSE:BHP), Freeport-McMoRan Inc (NYSE:FCX) and Zijin Mining Group Co Ltd Class H (SEHK:2899).

The deal requires two-thirds approval from both of Teck’s shareholder classes, and more than 50% from Anglo shareholders. Panmure Liberum, which left its price target at 2,000p, warns that support of Teck Resources Ltd Class B (Sub Voting) (TSE:TECK.B) class B shareholders may be trickier given the zero bid premium.

BHP is seen as a potential deal interloper but Berenberg reckons a fresh tilt for Anglo American is unlikely given its own share price underperformance since an earlier bid in 2023.

It added: “We could envisage BHP bidding for Teck, given its attractive assets, but we think that the synergies are at their most compelling with an Anglo bid.”

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The bank believes Glencore (LSE:GLEN) is a clear suitor for Teck, but that the cultural differences between the companies mean that Anglo is likely to remain the preferred suitor.

Berenberg upgraded Anglo’s shares to a Hold and upped its valuation multiple to eight times earnings from six, a move taking its price target to 2,300p.

It warns that Anglo’s ongoing simplification strategy faces headwinds, reflecting the impact of weak commodity prices on the sale of its metallurgical coal assets and potential challenges in terms of the divestment of De Beers. “However, this deal changes the game”.

The significant synergies attached to the Anglo-Teck merger are widely regarded as a big hurdle to competing offers.

In particular, Anglo-Teck estimates $1.4 billion (£1 billion) of annual savings by integrating the pair’s neighbouring Collahuasi and Quebrada Blanca mines in northern Chile. That’s on top of about $800 million through wider economies of scale and operational efficiencies.

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Deutsche Bank is Buy-rated on both companies having recently upgraded Canada’s Teck due to its strategic value.

The bank said: “We view this as a compelling transaction due to the synergies on offer - potential 10-20% value uplift for the enlarged group - and through the creation of a leading copper major (scope for multiple re-rating).

“The core value-unlock from the deal is through the combination of the adjacent Collahuasi and QB mines in northern Chile. The timing is a little earlier than we may have anticipated, due to both companies still inwardly focused, but the industrial logic to the deal is clear.”

UBS, which has a price target of 2,750p, added: “We view this as an attractive combination due to significant synergies and re-rating potential.”