By Alec Hogg
Last week’s “dawn raid” which netted control of 12% of Anglo American plc for Indian entrepreneur Anil Agarwal reminded me of wisdom expressed in conversations with two South African business icons who share the same first name.
Donald Gordon epitomised patience, a virtue he applied to build two empires, the first (insurance) from his native Johannesburg, the second (property) from London. Donald Ncube’s genius was to swim against the tide, a penchant born during his formative business years at that very same Anglo where his prime role was “posing uncomfortable questions.”
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Anglo’s new shareholder Agarwal has probably not met either of the Donalds, but he certainly shares the characteristics of patience and contrarianism that are hugely valuable for all investors.
Last week’s £2bn purchase of Anglo shares, engineered through a complex structure concocted by JP Morgan, gives Agarwal control over the shares for the next three years. It is being communicated as a way for the Indian billionaire to take a bet on the firming commodity cycle and on a company whose management and assets he admires.
But I’d look a lot deeper. When we met in Davos this year, the Indian billionaire said he’d supported the directive of his Prime Minister Narendra Modi by investing in SA. First via a $400m purchase of the mothballed Gamsberg zinc mine. Then a further $600m commissioning SA companies to build Vedanta’s Indian zinc smelters.
Those injections will endear Agarwal to a SA Government keen to attract foreign investment, especially from fellow BRICS. This is the key part of last week’s story.
Anglo’s biggest shareholder, at 14.5%, is the Public Investment Commissioner, a key lever in the SA Government’s “radical economic transformation” policy. Together with likely ally Agarwal, their combined vote is now above 25% of the equity, the level at which shareholders can start making life difficult for managers who are reluctant to follow the agenda they propose.
It’s leverage the wily Agarwal will surely use to advantage in advancing his patient agenda which began seven years ago when his Vedanta paid $1.3bn for Anglo’s zinc mines in SA, Namibia and Ireland. That was followed up in September 2015 when he hired Anglo’s former CEO Cynthia Carroll to help with Vedanta’s strategy. She only lasted a few months, but during that time would certainly have helped Agarwal fill in any information gaps.
Early last year, when Anglo’s “For Sale” boards went up everywhere except on its diamonds, PGM and copper assets, Agarwal proposed a merger of Vedanta and Anglo’s zinc interests. In July Bloomberg reported that the proposal was “quickly dismissed” – but from his side Vedanta’s chairman believes mutual advantages of the idea are just taking time to be fully appreciated by Anglo’s managers and directors.
After last week’s surprise move, such digestion is sure to be accelerated. As will other “radical economic transformation” ideas the PIC might have been quietly forwarding thus far without much success. Agarwal’s new wild card is sure to unleash interesting consequences. They are most likely to involve deals that should help Anglo’s share price, at least in the short-term. Keep close.
