MUMBAI: Metal trader turned mining tycoon Anil Agarwal surprised the City of London on Wednesday night with an audacious $2.44-billion share purchase in Anglo American — one of the world’s top five miners and owner of the largest diamond producer, De Beers.
Interestingly, the Patna-bred Agarwal’s move came after Anglo American last year rebuffed a merger proposal made by Vedanta Resources, in which he is the controlling shareholder.
Vedanta chairman Agarwal’s family trust Volcan Investments will own around 13% stake in Anglo American and emerge as its second largest shareholder, just behind South Africa’s Public Investment Corporation, which has a 15% holding.
Volcan and Vedanta said the move was a personal investment decision of Agarwal and he had no acquisition plans in mind. But the financial hub of London buzzed with speculation even as British newspapers headlined the news as a ‘raid’ and ‘share grab’. Anglo American hadn’t reacted to Agarwal’s share purchase till the time of going to press.
Top bankers, who have worked with Agarwal and Vedanta, told TOIthat the investment deal “is not friendly, though not necessarily hostile”.
A source close to Agarwal said the latter will not push for a board seat as of now. “We don’t know what happens tomorrow,” the official, who didn’t wish to be named, added.
Anglo American and Vedanta shares galloped during Wednesday morning trade on London bourses, up 9% and 10% respectively. Anglo American ($22 billion) is significantly bigger than Vedanta Resources ($3.1 billion) in market value.
A section of analysts tracking the metals and mining sector said Agarwal could push for abreak-up of the storied, 100-year-old Anglo American, and look at acquiring assets that are synergistic to the Indian mining powerhouse Vedanta.
Anglo American is the largest miner of platinum with almost 40% share of the global output, besides being a significant producer of diamonds, copper, nickel and iron ore. It has an annualised revenue of $23 billion and operating profit of about $6 billion.
The Johannesburg-and London-headquartered miner took control of De Beers when it purchased shares from the Oppenheimer family, which is embroiled in Africa’s ‘blood and conflict’ diamond controversies.
Last year, Agarwal, who lives in London, had approached Anglo American with a merger proposal, which was summarily rejected.
Volcan is financing the investment through issuance of mandatory exchangeable bonds, guaranteed by JP Morgan and secured by Anglo American shares, which prevents any downside to Agarwal’s investment if he decides to unwind position in the big miner.
Banking sources said Agarwal was also eyeing Anglo American’s superior technological mining know-how, as Vedanta looks to optimise operations at its production hubs.
But these sources added Agarwal was unlikely to trigger hostile moves immediately, given that he does not have necessary financial muscle to pull it off. “He doesn’t have the resources currently (unless he finds a partner) and is not known for taking hostile steps. He probably wants to keep an inside track of any potential M&A moves at Anglo American, and be proactive when it happens,” one of the sources explained.
The most probable scenario would be Agarwal identifying potential partners for a break up of Anglo American, which had explored sale of different assets during the recent downturn, he argued.
Agarwal has a track record of complex and difficult acquisitions behind him, which included purchases of Bharat Aluminium Company (BALCO), Hindustan Zinc Ltd when the government kicked-off disinvestment in 2001. He later acquired the country’s largest iron-ore miner Sesa Goa and the second large private oil producer Cairn India. In 2003, he created Vedanta Resources, which became the first Indian entity to list on London stock exchange, as the holding company of his metals and mining conglomerate.
In recent weeks, markets have speculated about Vedanta pursuing acquisitions on the back of recovering commodity prices and a bounce back in share price. Agarwal, whose family controls 61% stake in Vedanata Resources, has strengthened the top management with recent inductions like former Rio Tinto boss Tom Albanese as CEO and ex- Royal Bank of Scotland executive Viral Gathani as corporate finance and strategy head for the group.