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London - Anil Agarwal, an Indian mining billionaire, plans to buy as much as £2bn (R31.51bn) of Anglo American [JSE:AGL] shares in the market after a merger proposal failed last year.
The full stake would equate to about 13% of Anglo’s stock, making Agarwal the second-largest shareholder after South Africa’s Public Investment Corporation (PIC). It will give him a strong voice in the company’s strategy as the blue-chip British mining firm cements its recovery from a slump in commodity prices.
While Agarwal said the purchase was a family investment and he won’t make a takeover bid, the brash Indian tycoon offered to merge part his mining empire with Anglo American last year, only to be rebuffed. The London-based mining group, which is currently looking for a new chairperson, is seen as a candidate for a potential break-up through splitting its South African assets from the global mining business.
“It gives him an extremely good seat at the table if there is going to be any corporate activity,” said Jeremy Wrathall, head of mining research at Investec. “We expect that M&A is going to be the next phase and maybe this is firing the starting gun.”
The purchase will be funded via a mandatory exchangeable bond issued by his holding company, Volcan Investments, and secured by Anglo’s shares, the investor said in a statement on Wednesday. A representative for Anglo American declined to comment.
Anglo American’s US traded shares rose as much as 11%. Anglo was the best performing stock on London’s FTSE 100 Index last year, gaining about 288% amid recovering commodities prices and a cost-cutting programme.
Anglo American, a company founded by the storied Oppenheimer dynasty in South Africa more than a century ago, is one of the world’s top five mining groups, alongside BHP Billiton, Rio Tinto, Vale SA and Glencore. Its key assets include giant copper mines in Chile, iron ore operations in Brazil and South Africa and De Beers, the iconic diamond producer.
“This is an attractive investment for our family trust,” Agarwal, who founded Vedanta Resources, said in the statement. “Anglo American 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.”
At the World Economic Forum in Davos in January, Agarwal defended last year’s attempt to merge his group, which includes one of the largest zinc miners, with Anglo American.
"It was a good match. One and one wasn’t going to be two, but 11," he said in an interview.
Anglo American’s shares slumped to a record low in London in early 2016 as weak metal prices focused attention on its debt position. Chief Executive Officer Mark Cutifani announced a plan to radically shrink the company through asset sales, but reversed the strategy early this year after recovering commodity markets revived profits.
JPMorgan role
JPMorgan Chase is acting as the sole bookrunner and underwriter on the financing as well as the coupon guarantor. Volcan plans to place the bond on or around April 11, the statement said.
The deal is a coup for JPMorgan, which rose three places to rank second in equity offerings in Europe, the Middle East and Africa last year, according to data compiled by Bloomberg.
The holding is similar to Liberty Global Plc’s 9.9% stake in ITV Plc and the Qatar Investment Authority’s holding in J Sainsbury.
Vedanta said in a separate statement that the investment is being made by Volcan alone, and it’s not participating in the purchase.
The Agarwal family, who control 69.4% of Vedanta, pledged 21.65% of the company’s shares to JPMorgan to the financial deal. They also pledged Vedanta bonds worth $123m.
