Anglo’s shareholders – just waiting for more?

July 9, 2009

The Times says Anglo American shareholders have rejected rival Xstrata’s merger approach.

“All of Anglo’s leading institutional investors are understood to have turned down Xstrata’s nil-premium merger of equals,” the paper says.

No great surprise perhaps given the initial market response — which saw the Anglo premium widen over its rival mining group.

What is clear from the Anglo share price is that Xstrata’s approach — whether or not ultimately successful — has jolted Anglo’s shareholders into action, increasing the pressure on Anglo’s management to up its game and reveal its hidden gems.

This dusting down process may already be underway, although Michael Rawlinson at Liberium thinks it is probably too little, too late.

Rawlinson’s view:

  • We have yet to find an Anglo shareholder that is happy with how Anglo is being run and has absolute faith that the ambitious cost savings targets can be achieved under the current management team.
  • Again, we have yet to find a shareholder who believes Anglo’s high exposures to SA and its difficult politics is a good thing and that diversification of risk away from this as bad.
  • Parallels between the merger of the once loathed and underperforming BHPB with aggressive newcomer Billiton have particular resonance in our view. We recall BHP shareholders initially resented the offer terms for the merger – but 8 years on it is clear the cultural renewal afforded by the sector defining deal has created a stand out industry leader

One of the Anglo businesses which could do with a bit of a polish is diamond producer De Beers, in which Anglo has a 45 percent stake.

De Beers tells Reuters correspondent Eric Onstad that while its first half and full year profits will be lower, they will not be negative.

The world’s top diamond producer has slashed output by 90 percent in the first quarter and is cutting operating and capital costs by $1.5 billion this year, but sees signs of recovery in the market.

But De Beers is only a small part of the story and Anglo shareholders will have a much harder decision to make if Xstrata does come back with a better offer.

Back to Liberium’s Rawlinson:

“We would regard the principal of a take-over has been established in the market and it is a pricing issue as to whether it can be done. This is a clear change from where we were a week ago.”



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