Anglo-Oppenheimer group to buy De Beers for $17.6 billion

A consortium led by mining giant Anglo American and South Africa’s billionaire Oppenheimer family on Thursday agreed to buy the world’s biggest diamond miner, De Beers, in a deal valuing it at $17.6 billion, Reuters reported.

The bid valued the firm at $43.17 a share and, if approved, would end a series of crossholdings between Anglo and De Beers which have blocked share price growth in both firms.

Under the proposed offer, De Beers would de-list from the Johannesburg Stock Exchange after more than 100 years and become a private firm run by current chairman Nicky Oppenheimer.

Oppenheimer said the deal was born out of his frustration at De Beers’ sluggish stock price. ”I came to the conclusion the best way forward would be to take De Beers private,” Reuters reported.

Shares in De Beers matched a previous record high of 330 rand (U.S. $41.90) on the news, a gain of 30% since it announced on February 1 it was in preliminary talks with the consortium.

De Beers stock, which closed at 328.4 rand (U.S. $41.7016) Thursday, has heavily underperformed the Dow Jones Industrial Index for the past two years, but some analysts said the bid should have been nearer $47, Reuters reported.

A few London-based De Beers shareholders, including a fund manager, questioned the value of the bid, according to Reuters. De Beers said the bid was fair and it could not foresee a higher, rival bid emerging.

Anglo shares closed up 3.4% at 45.80 pounds (U.S. $66.43) Nicky Oppenheimer said he hoped to complete the deal by mid-year.

De Beers managing director Gary Ralfe said the offer valued the company’s diamond business at $8.3 billion and its current 35.4% stake in Anglo at a further $9.3 billion.

Anglo holds a corresponding 32.3% stake in De Beers.

Analysts said the deal was good for both De Beers and Anglo, according to Reuters.

Anglo chief executive Tony Trahar said the deal would remove a brake on Anglo’s share price and help it retain its weighting in London’s FTSE 100 index of major stocks.

From June, the FTSE will give preference to firms that have larger free-floats, hitting firms with big cross-shareholdings. If De Beers’ stake in Anglo is not unwound by then, fund managers could be forced to sell Anglo stock.

”The deal will increase our free float to around 90%,” Trahar to Reuters, adding the deal would be earnings neutral for Anglo and swell the group’s cash coffers.

Anglo also announced a three-for-one bonus share issue, effectively splitting its stock, making it more affordable.

South Africa’s central bank has approved the deal, and President Thabo Mbeki said he was pleased with the capital inflow it would generate, Reuters reported.

Each De Beers shareholder is being offered 0.43 of an Anglo share, plus $14.40 in cash plus a dividend of $1.00. The shareholders still have to approve the deal.

De Beers estimated its headline earnings for the year ended December 31 had climbed 137% to $1.707 billion, but said it could not match this performance in 2001.

De Beers said its sales of rough diamonds would likely fall by 10% or more this year because of weaker demand in the United States, which accounts for over half of retail sales.

De Beers said that Oppenheimer, the current chairman, would remain in the post if the bid was successful, but would step down as deputy chairman of Anglo once the deal was completed.