Latest Agarwal move revives Anglo deal talk
Indian billionaire makes $1bn bid for the rest of Vedanta
The more baby steps mining tycoon and Indian billionaire Anil Agarwal takes, the more the market agrees that a deal with Anglo American is increasingly likely.
The latest move this week by Agarwal is a bid of $1-billion to buy the remaining stake he does not own of the London-listed Vedanta Resources. This would value the business at £2.33-billion (R52-billion). The move has the market again talking of a possible merger with Anglo American.
Volcan Investments, which Agarwal’s family trust owns, has controlling stakes in Vedanta Limited and Vedanta Resources.
Vedanta Resources is a London Stock Exchange-listed company that has a 50.1% stake in Vedanta Limited and a 79.4% stake in KCM, a copper operation in Zambia.
Vedanta Limited is listed on the New York and Indian stock exchanges and its assets include zinc, oil-and-gas, copper and iron ore.
When Agarwal buys the balance of Vedanta Resources, the company will delist from the LSE, leaving Volcan Investments with a 50% stake in Vedanta Limited. The deal will achieve the simplified corporate structure Vedanta Resources has been talking about for the past nine years, and which analysts say makes sense because the complex structure of Vedanta Resources has made the company difficult to value.
Agarwal acquired a further 9% stake in Anglo American late last year after taking up 11% in February last year. Earlier this year AngloGold Ashanti CEO Srinivasan Venkatakrishnan was appointed CEO of Vedanta Resources. He will take up the position next month.
All of which seems to be laying the groundwork for a consolidation of Vedanta Limited with Anglo American.
Delisting Vedanta Resources means Venkatakrishnan will head an unlisted company.
Ben Davis, an analyst at London-based Liberum, said although delisting simplified the corporate structure of the business, the single move did not improve the merger prospects for Vedanta Limited and Anglo American.
This was because “you are now offering Indian paper instead of a London listing, making it far more of a headache to hold”, Davis said.
New structures could be created but that would mean more work. India is known for its bureaucracy that makes it difficult for miners to operate, but Agarwal has built his wealth in India and this will make it easier for players such as Anglo American to enter the market.
Anglo American Platinum, a division of Anglo American, has seen some growth with its platinum jewellery in India because millennials in this market are different from older generations, who favoured gold jewellery over platinum. A merger of the parent company Anglo American with Vedanta Limited would mean Anglo American Platinum could get better access to the Indian market for its platinum.
In an attempt to figure out Agarwal’s moves, analysts see various merger options for the two companies, one of which is Agarwal getting a controlling stake in Anglo’s South African assets.
A report released by Liberum this week said that in order for Agarwal to control Anglo American’s South African assets he would have to get the Public Investment Corporation — the second-biggest shareholder in Anglo American — to convince Anglo American to create a company which has South African assets only.
The new vehicle would include all Anglo American’s South African assets, such as De Beers, Amplats, Kumba and Anglo American Coal. In this new vehicle, Anglo American would have a 42% stake while retaining a 100% shareholding in its non-South African businesses, the report said.
However, Anglo has previously said that De Beers was part of the priority assets and that it was committed to other assets in South Africa.
Another analyst, who did not want to be named because of company policy, said Agarwal’s plan would include a separation of Anglo’s international assets from its South African ones and the PIC would take a stake in Anglo’s South African assets. But he said it was more likely that Anglo would make a bid for Vedanta, given that Anglo was now twice the size of Vedanta Limited in terms of market capitalisation, making it impossible for Vedanta to bid for Anglo.
But what would be in it for Anglo to make that kind of move?
The analyst said that in terms of commodities, Vedanta Limited had a number of attractive commodities that Anglo could be interested in, such as zinc and copper, some of which had previously been owned by Anglo American.
For example, Zambian-based KCM would be held by Volcan investments and sold back to Anglo American.
“The combined company would have exposure in all the commodities the big diversified miners are in,” the analyst said.
But he added that the two companies were not a good fit in terms of corporate culture, given that the Vedanta was run by entrepreneurs, although Vedanta’s culture was in some respects trying to emulate Anglo’s corporate culture.
Offering Indian paper instead of a London listing makes it far more of a headache to hold Ben Davis
An analyst at Liberum