Anglo American climbs on report of Agarwal merger interest

Anglo American was top of the Ftse 100 leaderboard on Wednesday on reports of interest in a possible deal from Indian metals tycoon Anil Agarwal.

Shares in the London-listed miner climbed as much as 4 per cent to above 1,700p after a report in Mint, an Indian financial daily, claimed that Mr Agarwal was working on a plan to merge Vedanta Resource with Anglo's South African business via a share swap.

The report comes days after Mr Agarwal's family trust, Volcan Investment, launched a near £800 million offer for the 33.5 per cent of Vedanta Resources he does not already own.

“The merger of Vedanta Resources and Anglo American South African will create an entity valued at $7 billion and eventually give Volcan Investments control of the entity,” the report said, citing two unnamed people aware of the plan.

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“The idea is to first buy back the public shares of Vedanta Resources, which will save costs of being listed and make holding structure simpler,” the report said.

“The second stage of the strategy is to take over Anglo American SA so that Volcan’s economic interest increases further in the company and is able to gain from Anglo’s growth. In the third stage, an option is to list the merged entity, which will ultimately benefit all stakeholders.”

Analysts wary

Many London-based analysts were wary of the report and said it was difficult to see how Mr Agarwal would pull off a deal even with the 20 per cent interest he has amassed in Anglo through Volcan.

Others noted that Anglo’s stakes in Kumba, an iron ore miner, and Anglo Platinum were worth almost $11 billion and that Anglo’s South African business hasn’t issued any shares that could be used as currency in a merger.

“We are deeply sceptical. Agarwal may have 20 per cent of the voting rights of Anglo, but he would be powerless to act on this as it would be a related party transaction,” said Hunter Hillcoat, analyst at Investec Securities.

“Why would other shareholders therefore want to dilute their ownership with an Indian business with all its own issues and complexities? Why would they do this when South Africa remains an important source of cash flow (supporting Anglo’s PLC dividends), when the company has been increasing capital requirements.

“In addition, Anglo South Africa does not own De Beers, which is identified as a desired target,” said Mr Hillcoat.

Speculation ‘overdone’

“Press speculation of a combination between Vedanta and Anglo American’s South African subsidiary appears extremely overdone, especially given the debt load carried by the former,” said Edward Sterck of BMO Capital Markets.

“However, there could be some logic to potentially using a sale of South African (RSA) operations to pay down ex-RSA debt (assuming RSA capital controls allow), but this might leave the residual Anglo American at risk from predators looking to acquire its copper interests while disposing of other assets,” he added.

Traders said a more likely deal would be a merger with Vedanta Limited, although that would still be fraught with complexities.

Mr Agarwal wants to build his Vedanta group of companies into an Indian version of BHP Billiton, the world’s biggest natural resources company.

The buyout of Vedanta Resource is designed to simplify his sprawling business empire and consolidate all of his interests into Vedanta Limited, which is listed in India and with a market value of $12.5 billion.

Vedanta declined to comment on the report.

– Copyright The Financial Times Limited 2018