David Gleason : A SECOND LOOK
Anglo American Corporation chair Julian Ogilvie-Thompson’s announcement last week that it is to become a United Kingdom registered company with a primary listing on the London Stock Exchange poses as many questions as it does answers.
The decision to shift Anglo’s head office to Britain follows the path blazed last year by Billiton, the natural resources group spun out of Gencor. And the Johannesburg market is now alight with speculation that this route to internationalisation is to be adopted by other major South African companies – including South African Breweries, Liberty Life and Old Mutual.
What does this trek to the outside world presage for the status and standing of South Africa as a market with which to be reckoned? There can no longer be much doubt that it will have the effect of diminishing the importance attached to this country as a financial centre of some note. But perhaps that was inevitable anyway.
In the case of Anglo, the country’s largest business combine, the decision to shift to the UK is merely a part of a much wider process, begun last year, to refocus the group on its original core – the commerce of mining. That reflects the current wisdom that conglomerates are in serious disfavour and only intensely focused companies offer adequate attraction to investors.
For Anglo, this meant creating or reinforcing separate, self-standing units such as Anglogold, only recently listed; De Beers, the international diamond mining and trading giant; Anglo American Platinum (Amplats); Minorco, previously the group’s global mining arm; Anglo American Coal (Amcoal) and Anglo American Industrial (Amic), concentrated largely in South Africa and in heavy engineering.
But, taken to a logical conclusion, that would also mean that Anglo itself would be left with no rationale for its continued existence as a holding company at the centre. Since this was clearly unpalatable to the men who run Anglo, the logical reaction was to inject into Anglo itself companies which would provide it with adequate size and muscle.
What is now taking place is that Anglo and Minorco have agreed to merge to form Anglo American plc, a new UK company to be listed on the London Exchange. Minorco will disappear, folded into the maw of its parent on the basis of a share exchange – one new Anglo plc share for every two of Minorco’s, with an underpin of $16 for each Minorco share. (As an aside, it’s worth noting that the underpin and the share swap mean that Minorco’s stock is actually begging to be bought.)
It is also the intention that Amcoal will become a wholly-owned subsidiary of the new Anglo plc, which will also absorb all the shareholdings in the old Anglo American Corp. This also applies to Amic and to certain other downstream subsidiaries (such as Highveld and Tongaat-Hulett).
SO WHAT ANGLO PLC ENDS UP AS IS AN OPERATING MINING COMPANY, HEADQUARTERED NOMINALLY IN LONDON (OGILVIE- THOMPSON IS ADAMANT THIS DOESN’T MEAN A WHOLESALE EMIGRATION OF KEY STAFF).
It will mine and market coal (in South Africa and Colombia), copper (mostly through the rapidly expanding portfolio established in South America) and industrial minerals (in Europe); and have interests in heavy engineering and associated business (Amic, mostly in South Africa), and forest products (pulp and paper through Mondi in South Africa and Europe).
In addition, it will hold strategic, controlling shareholdings in Anglogold (52%), De Beers (32%) and Amplats (more than 50%). Its own biggest single shareholder will be De Beers.
The allegation, therefore, that assets are being moved offshore isn’t exactly correct. The assets remain largely here – mines cannot be translocated.
Nor is it true that ownership will immediately become totally international, though that is what will probably happen over time. It is not simply a case, as the unions apparently fear, of whites using this as another avenue to get their cash out of the country.
What all this does is to concentrate attention on the historic inability of this country’s premier businesses to compete internationally. When exchange controls were first introduced in 1960 immediately after the Sharpeville massacre (to stem the instant flight of capital abroad), their effect was to isolate South Africa’s major undertakings from the rest of the world. It has been so, more or less, ever since.
Over this same period of nearly 40 years, the world’s major mining companies have pursued the best mineral assets around. And they have been able to do so without any interference – competition – from the South Africans, ironically and arguably the world’s best miners, who were blocked by their own government from the race for global wealth creation.
A further feature concerns North America. Anglo has long been dogged by the decades- long determination of the United States anti-trust lobby to break what it considers the stranglehold exercised by De Beers over the world diamond trade.
The intimate cross-holdings of the two companies meant that Anglo was treated with the same suspicion. For years, senior Anglo personnel have visited the US with trepidation, if at all. And the company was effectively excluded from doing business in the world’s biggest economy.
One effect of the new structure – and the apparent independence of the greater group’s individual segments – means that, provided Anglo is careful to avoid cross directorates (anathema to the US Securities and Exchange Commission), it will probably, for the first time, be able to enjoy the risks and rewards of doing business in the US. This has been a long time coming and, carefully managed, the benefits for South Africa could easily be profound.