In a deal rich in historical significance, mining giant Anglo-American has acquired a controlling stake in the diamond producer De Beers for $5.1bn.
The bare numbers hardly do the deal justice but in essence Anglo-American, which has been a shareholder in De Beers since 1926, will buy the Oppenheimer family's 40% stake in the firm, thus ending the family's involvement after 80 years.
Sir Ernest Oppenheimer was actually one of the founders of Anglo-American back in 1917, along with a certain J.P. Morgan. Oppenheimer then took control of De Beers in 1927. The histories of these two firms have been intertwined ever since, right through the momentous years of apartheid and the ending of white rule in South Africa.
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To understand this deal from the Oppenheimer family's perspective, one needs to be aware of the racial politics that underpin De Beer's operations in Botswana, Namibia and South Africa. The time when a single white family could comfortably hold sway over such important economic assets in Africa may well have passed. It simply doesn't look good and in Africa there are significant risks in not looking good (ask many of the white Zimbabwean farmers evicted from their lands).
With that in mind and with diamond prices buoyant, cashing in for $5.1bn makes a lot of sense. It also helps the Oppenheimer family diversify their investments.
For Anglo-American, the problem with De Beers has always been about value. It already owned 45% of De Beers but as de Beers is a private company establishing exactly how much that 45% was really worth was never easy. Well now we know. This deal values De Beers at $12.75bn, with Anglo's stake worth $10.8bn. There is, of course, always a chance Anglo could decide to cah in itself and list De Beers as a separate entity. If that happens in the next year the transaction agreement gives the De Beers family a 20% listing bonus over and above the $5.1bn they have already pocketed (falling to 10% if the public offering takes place in two years)
The slight complication is that the Republic of Botswana has pre-emption rights to acquire up to 25% of De Beers. If that happens the Oppenheimer family would have to return 25% of the transaction value.
Crucially, the CEO of De Beers, Phillippe Mellier is expected to stay at the helm.
Commenting on the transaction Nicky Oppenheimer said:
"This has been a momentous and difficult decision as my family has been in the diamond industry for more than 100 years and part of De Beers for over 80 years. After careful and deliberate consideration of the offer, and what is in the best interests of the family, we unanimously agreed to accept Anglo American's offer."
For her part, Cynthia Carrol Chief Executive of Anglo American, said:
"This transaction is a unique opportunity for Anglo American to consolidate control of the world's leading diamond company - De Beers. Today's announcement marks our commitment to an industry with highly attractive long term supply and demand fundamentals."
Anglo-American's shares were up 1.72% in early trading on news of the deal.
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