David Le Page
De Beers’s long and controversial cross-holding with Anglo American is to end, and the diamond giant plans to delist to become a private company.
At an investors’ conference on Thursday, De Beers and Anglo American executives spelt out the logic behind the restructuring of the ownership of the world’s largest diamond company and long-time custodian of the diamond market. Shareholders will be offered, for each linked-unit share in De Beers, 0,43 Anglo American shares and $15,40 in cash including a $1 De Beers final dividend. This amounts to $43,17 at current share prices, and a fair premium over the recent De Beers average share price of about $25.
On the surface, then, it appears to be a good deal for shareholders, and one which is likely to be accepted. The principals argue that those shareholders who would have preferred continued exposure to the diamond business can now do so through Anglo American. But it is perhaps less attractive than meets the eye one of the major reasons for the deal, after all, is that the company has long considered its shares to be dramatically undervalued, like the rand. Some analysts believe the company’s real value would have been better reflected by a $35 share price. The reasons for the company’s undervaluation, as supplied by company chair Nicky Oppenheimer, have been the cross-holding with Anglo American (they hold 32% and 35% of each other), and a lack of transparency and accountability.
But other “inhibitors”, such as the company’s persona non grata status with the United States Department of Justice (which deems it a monopoly the Microsoft of the diamond world) and the company’s Africanness remain. They will become the problem of Anglo American, which increases its shareholding to 45%.
The Oppenheimer family will hold another 45% of De Beers, through Central Holdings Limited (CHL), and Botswana diamond company Debswana will hold the remaining 10%. These three companies will own De Beers through a new vehicle, DB Investments (DBI). DBI will be worth $6,8- billion, half of which will be supplied to Anglo, CHL and Debswana by banks on a five-year loan basis. The public’s share in Anglo American will expand from 58% to 93% after the deal. The deal represents a concentration on Anglo’s minerals and resources businesses in 2000 alone it disposed of R800-million worth of industrial interests. Anglo hopes that its share price will be “rerated”, or increase noticeably, after the deal. According to Oppenheimer, the deal will see $2,9-billion in foreign funds flow into South Africa to local shareholders, as noted by President Thabo Mbeki in his state of the nation speech last week. Of course, those shareholders will probably immediately reinvest that money offshore.
The deal has already been approved by the Reserve Bank and should be wrapped up by July at the latest, pending approval by shareholders, the competition commission, the high court and the revenue service.