Anil Agarwal’s £2bn investment in Anglo American shares, giving his trust – Volcan Investments – a 13% stake in the UK-listed firm, was an attempt to flush out rival bidders for Anglo’s assets or buy the South African assets identified by CEO, Mark Cutifani, as non-core, said analysts.
“From a strategic point of view, some kind of deal could potentially hand Anglo a solution to their problem of perceived ‘over-weighting’ towards South Africa,” said Paul Gait, an analyst for Bernstein. “It could put Agarwal in a prime position to take the South African assets – the African limb he desires for Vedanta – and allow Anglo American to achieve the kind of South Africa exit that it, in turn, desires,” he said.
Anglo American said it would treat Volcan Investments as with any other shareholder. “Anglo American has had no discussions with Volcan on this matter,” it said in a media statement.
“Going forward, if they do go ahead with the investment, we would expect to interact with them as we would with any other shareholder of Anglo American,” it added. Agarwal, who is executive chairman of Vedanta, has an interest of 69.62% through Voltan Investments in Vedanta.
Agarwal told the Economic Times last year that he would like to add South Africa to Vedanta’s geographic scope and that a tie-up between his Hindustan Zinc and Anglo was “a good match”. Anglo earlier rejected some form of merger proposal between the two companies’ assets.
In an interview with Miningmx, he also expressed a high level of comfort with investment in South Africa saying there was a cultural fit and that the South African government was doing “the right things”. During the state visit of Indian prime minister, Varendra Modi, in 2016, Agarwal said that he would like to extend the firm’s footprint in South Africa.
The company has sanctioned $400m in the Gamsberg zinc complex in South Africa’s Northern Cape province, and is considering a further expansion which would see another $500m being pumped into the country at a time when foreign investment is diminishing.
Credit Suisse said in a note today there was little strategic fit between Vedanta and Anglo and that Anglo shareholders were unlikely to be interested in Vedanta’s commodity mix which was in aluminium, zinc and oil or India.
However, it believed that Anglo was a potential break-up candidate while the investment by Volcan Investments could lead to a redoubling of efforts to simplify the group.
“Could this draw other interested parties out of the woodwork?” said Credit Suisse. “It is possible, but we think Anglo remains a relatively complex company to tackle for most given the high South African exposure and group holding structure,” it said. Anglo derived 45% of its pretax earnings in its 2016 financial year from mines in South Africa.
Investec Securities said the investment by Agarwal was the first instance of a company seeing value in the commodity shares where the market did not.
“While Agarwal has stated that he sees his new shareholding in Anglo as an investment, we note his reported comments at Davos in January where he indicated that he had previously sought a merger of the two groups,” it said.
Some analysts were left scratching their heads at the investment as there were no obvious synergies between the two companies that could support its thesis.
“In metal and mining, operational synergies from combining multi-asset diversified companies is in general quite limited,” said Morgan Stanley in a note to clients.
“Synergies can be achieved by combining neighbouring properties where ore has been left in the ground between properties or where processing capacity is under-utilised,” it said.
“There are no such assets between Anglo American and Vedanta Resources. The latter has its operating assets in India and Zambia. Anglo American has no presence in these countries,” it added.
One sub-plot that is being speculated is that Agarwal could find an ally in the Public Investment Corporation (PIC), the government-owned asset management company which also wants Anglo to restructure.
Agarwal would be conflicted in attempting to force through a deal at the Vedanta level with Anglo, but in finding an alliance with another shareholder, he could “… exert pressure and influence in a collective way,” an analyst said. The PIC had not commented on the Agarwal investment at the time of writing.