De Beers May Go Private

De Beers is on the verge of becoming a private company for the first time in more than 100 years.

Under a new plan recently approved by the De Beers board, three of its largest shareholders would increase their stake in the company, buying back all remaining shares and forming a new entity, DB Investments. The three shareholders are De Beers’ “sister” company, Anglo American PLC, founded by the family of current De Beers chairman Nicky Oppenheimer; Central Holding Limited, the Oppenheimer family holding company; and Debswana, the joint venture between De Beers and the government of Botswana.

The offer of $43.17 a share values the company at $17.6 billion. For most of the past year, the company’s stock was in the $20 to $30 range.

While the board of De Beers recently accepted the deal, it is subject to shareholder and regulatory approval. Analyst reaction has been mixed, with some urging shareholders to hold out for a higher offer.

At a press conference, Oppenheimer explained that, after trying to please the stock market over the last two years to little avail, the company was throwing in the towel and determining that its interests could better be served as a private entity. He noted that since De Beers’ share price looks like it will always be depressed—for various reasons, including its African base and its antitrust problems in the United States—a takeover was the best way to give shareholders full value. “The diamond business is uncertain, [and] this provides certainty for the shareholders,” he said. De Beers expects diamond sales to fall by as much as 10% this year.

Spokesmen added that the deal represented a public show of faith in the future of the diamond industry from the Oppenheimer family. “The deal means a great deal to my family,” said Oppenheimer, who will remain as De Beers chairman. “It’s a large commitment by us, but something we are happy to do.” He noted that his son Jonathan is a De Beers employee and could continue the family legacy.

While many press accounts speculated that the deal might have something to do with De Beers’ antitrust problems in the United States, executives said it would have no effect—although Anglo’s proposed 45% share in the company was seen as an attempt to ward off possible problems associated with a majority holding in De Beers. “I don’t think the deal will get rid of [the antitrust issue],” said Oppenheimer. “The new management of De Beers will still have to wrestle with the legal problems that surround De Beers and have to find a way around this very difficult problem.” However, managing director Gary Ralfe told The New York Times the new Bush administration may look at the issue more sympathetically than the Clinton administration did.

Oppenheimer said the deal will mean no change in De Beers’ current management or operations. “One of the reasons my family is so happy to make this investment is we have such confidence in the current management of De Beers,” he said. He added that, despite being a private company, De Beers will continue to be more open and responsive, as it has been in recent years.

The deal does, however, address a frequent criticism of both companies. The market looked unfavorably on the complex web of stock holdings that linked Anglo and De Beers. (Currently, each owns about a third of the other.) Analysts said this arrangement depressed both companies’ stock price, because it stifled possible takeover attempts and limited market input. If this new deal goes through, De Beers will be private and the amount of Anglo stock on the market will increase.

De Beers’ planned delisting was seen as a blow to the country of South Africa, since analysts predicted it would hurt the Johannesburg Stock Exchange, where De Beers was one of the most actively traded listings. Anglo-American de-listed from the Johannesburg exchange to the London bourse in 1998.