Mumbai: Billionaire metals maven Anil Agarwal made a surprise bid for as much as 13% of British mining giant Anglo American Plc for $2.4 billion, a move that will give him a foot in the door of the $23-billion conglomerate, which is larger than his Vedanta Resources. It also gives him a piece of De Beers, the diamond powerhouse owned by Anglo American.
The move, made through his personal investment firm Volcan Investments, was announced late on Wednesday in London. While sources close to the Indian industrialist were insistent that it was not a “hostile bid”, the move comes a year after a merger proposal by Agarwal’s Hindustan Zinc was rebuffed by Anglo.
In an interview to Bloomberg at the World Economic Forum at Davos in January, Agarwal had said: “There was a proposal that Hindustan and Anglo American should merge… It was a good match. One and one wasn’t going to be two, but 11.”
The full stake will equate to about 13% of Anglo’s stock, giving Agarwal, an investor long reputed to have a “risk-taking appetite”, enough influence to bring the metals and mining major back to the negotiating table. The shareholding of Anglo American is widely dispersed with the South African government holding a significant stake. Agarwal seemed to play down any such intent.
“This is an attractive investment for our family trust. Anglo American Plc is a great company with excellent assets and a strong board and management team who are executing a focused strategy to drive shareholder value. I am delighted to become a shareholder in Anglo American Plc,” Agarwal said. His interest in Anglo American may also lie in the mining company’s ownership of De Beers, the world’s leading diamond exploration, mining and marketing company.
India’s diamond production is negligible, but it is the largest consumer of rough diamonds in the world, importing 80% of total global production with an import bill of $15 billion, besides being a hub for processing the stones. De Beers produces over 30 million carats of diamonds per year, 35% of the global production of roughs.
“Anil Agarwal always looks for opportunities to grow,” said veteran investment banker Nimesh Kampani. “Once he takes a strategic call, he goes the whole hog. He has a sharp mind in spotting good investments.”
Anglo American has revenue of $23 billion, Ebitda (earnings before interest, tax, depreciation and amortisation) of $6.1 billion and market value of more than $20 billion. It is a global leader in both platinum and diamonds apart from base metals and minerals — copper, nickel, niobium and phosphates. It also produces bulk commodities such as iron ore and manganese, metallurgical coal and thermal coal.
Thanks to a rebound in metal prices, Anglo American has seen its fortunes recover. At its peak in November 2007, when commodity prices were quoting at lifetime highs, market cap had touched $101billion. When commodity prices plummeted, this dropped to $8.88 billion.
At current prices, Anglo American isn’t cheap, but is still attractively priced, quoting at price-earnings multiple of 7.48, whereas Vedanta, the Indian mining and metals major owned by Agarwal, is quoting at a PE of 13.2.
Agarwal has been honing his acquisitive instincts from the early days. Back in the early eighties, he took a Rs 60-lakh loan from Syndicate Bank to buy jelly-filled cables. He was rebuffed by Alcan in the midnineties, when he made an unsolicited bid for its Indian subsidiary.
Alcan finally sold Indal to the Aditya Birla Group. In 2008, he pipped Lakshmi Mittal to buy iron ore miner Sesa Goa for $980 million. He used the cash with Sesa Goa to partly fund the acquisition of Cairn India for about $9 billion.
Agarwal, who once famously said he understands the “algorithm of metals”, has had transactions with Anglo American in the past.
The Konkola copper mines in Zambia were initially owned by Anglo American and Roan Selection Trust. Subsequently, government entities became the main shareholders. In 2004, Vedanta acquired a controlling stake in the mines from them.
In 2010, Vedanta acquired Anglo American’s portfolio of zinc assets in Namibia, South Africa and Ireland.
Through his entities, Agarwal has also signed an agreement with the South African government for sharing advanced mining technology.
With Agarwal’s Volcan owning 13% of Anglo American, Agarwal will be the second-biggest shareholder after the South African government investment firm Public Investment Corp, which owns 14%.
Any move by the government to sell will have Agarwal in pole position to drive a deal in his favour. Collateral for the deal will be Anglo American shares. Volcan intends to finance the investment through mandatory exchangeable bonds. The sale will be led by JPMorgan as sole bookrunner, on or around April 11, the closing date.
Agarwal started as a scrap dealer in 1975. It’s part of the folklore that when he first visited Mumbai at age 19, he was so struck by the opulence of what’s now the Trident Hotel on Marine Drive that he booked himself in, just to get a feel of the city and a sense of what it meant to be successful. But, frugal as he was, he ate and did his laundry elsewhere.