Mungo Soggot and David Le Page
The Oppenheimer company that is in line to effectively hold 45% of a delisted De Beers was, until very recently, registered in Liberia, a country from which it is impossible to extract any company information.
This is one of several details about the historic transaction to have emerged as analysts and investors pored over the diamond family’s proposed deal with mining group Anglo American. The suggested deal has a consortium of Anglo American (45%), Central Holdings Limited (45%) and Debswana (10%) forming a new company, DB Investments (DBI), which will own De Beers.
The Liberian connection is Central Holdings International (until recently the holding company for Central Holdings Limited), which is registered in the turbulent West African country. Central Holdings Limited is registered in Luxembourg.
The location of Central Holdings International is at odds with one of the primary reasons cited by De Beers chair Nicky Oppenheimer for the decision to go private namely that it would increase corporate transparency. Oppenheimer has also sought to dispel concerns that De Beers is quitting South Africa, citing its commitment to investing in the country and its remaining a South African operation.
When approached for comment, a representative of De Beers this week confirmed the Liberian registration of Central Holdings International, but said the company’s lawyers are arranging the dissolution of the company and the formation of a new holding company in an as yet undisclosed location. The representative was unable to disclose further details or the relevant dates relating to the changeover. He said Central Holdings International (Liberia) ”either has already, or is about to disappear”.
The latest edition of Diamond Intelligence Briefs, a leading industry newsletter, reported Central Holdings International’s registration. The newsletter said: ”Its Liberian location makes the getting of substantial information virtually impossible. For offshore companies in Liberia there is no need to have a local registered office, nor do non-resident companies need to file annually audited accounts or are subject to tax.”
The De Beers representative said the information in the newsletter was now effectively out of date, because of the current reshuffle of Central Holdings’ holding company.
Some minority shareholders in De Beers have professed deep concern about the handling of the deal. In particular, they have cited conflicts of interests among the supposedly independent members of the De Beers board, which has chosen to recommend the deal to the company’s shareholders.
Jeremy Hosking, a director of London-based Marathon Asset Management, raised these concerns at the investor conference to which the structure of the deal was announced.
”We reiterate our concern that all directors of De Beers may be conflicted or potentially conflicted in this transaction, because they are either executives of De Beers or affiliated to the partners of DBI, the buying consortium.”
These apparent conflicts of interests have fuelled concern about the price offered to shareholders for each De Beers linked unit $43,17: $1 in a final dividend payout, $15,40 in cash and the balance in the form of 0,43 Anglo American shares. The Anglo-De Beers cross-holding they own 32% and 35% of each other has depressed the De Beers share price, giving a far better appearance to this deal than it might otherwise have. The deal also frees Anglo of this albatross.
Those opposed to the deal say that at the very least the cross-holding should have been untangled without being tied to the Central Holdings purchase. That would have given the market a chance to establish a fair value for De Beers shares, before an offer was made to shareholders.
There are no signs as yet that more than 25% of the minority shareholders in De Beers will vote against the deal, and thereby block it. De Beers insiders claim that while some shareholders are predictably haggling over the price, the company has generally been congratulated on its handling of the deal.
One observer said this week that it was now or never for the deal to take place and that it would be disastrous if shareholders blocked it. He pointed out that Minister of Finance Trevor Manuel had signalled in this week’s budget that the secondary tax on company dividends could be extended to prevent the erosion of the tax base and make it more expensive for companies with offshore listings to go offshore. This means that had De Beers announced its transaction a few months later it may well have been hit by a tax introduced to prevent companies with offshore listings from unbundling without paying secondary company tax a tax that could have amounted to $1-billion.
De Beers, however, already has its go-ahead from the revenue services.
There nevertheless remains substantial scepticism over the deal, especially in the ranks of De Beers’s offshore investors.
”We do think there are lots of people who might rush over to have their tummies tickled by the Oppenheimers, who might end up regretting selling the diamond business for just three times annual cash flow,” said one this week.
”It’s potentially terribly disruptive to South African business. It creates a dreadful precedent for investors if the impression is created that the chairman of a business has a call option on their shares at the drop of the [business] cycle,” he said.
The South African government appears to have no such doubts. President Thabo Mbeki has given the nod to the De Beers deal, pointing to the more than R20-billion in foreign currency that will flow into South Africa to local shareholders if the deal goes through.
Mbeki gave the deal his blessing despite the fact that the delisting of De Beers will deprive the Johannesburg Securities Exchange already hit by a series of high-profile corporate departures to foreign bourses of 8% of its capitalisation.