High stakes with a rented Anglo stake

Anglo American's next board meeting is sure to be an interesting one as once again the miner is being dragged kicking and screaming into the murky world of M&A activity.

Indian billionaire Anil Agarwal's audacious move to effectively rent almost 12% of the miners shares, and thereby have a hand in whatever direction the miner takes in future, comes with a lot of market speculation about just what his intentions are.

A board seat will certainly be hard to come by, but I suspect that as a "shareholder" Agarwal will be an unwelcome insider.

For three years, and without having to spend a cent of his own vast wealth, the Indian billionaire has reserved his seat in Anglo's world.

To acquire (and I use this term loosely) his stake in the 100-year-old miner, Agarwal borrowed about $2-billion from bond investors through a three-year note paying interest of 4.125% a year.

story_article_left1

Effectively, you could say, he will be warehousing Anglo shares, and in that time he will be hoping some sort of deal is done that benefits his struggling commodities empire housed in Vedanta Resources.

Why this route? Quite simply because he was rejected by Anglo's board last year in his tentative approach for a merger. After that rejection, he today certainly finds himself in the middle of any future Anglo decisions.

It's a position that I am sure former CEO of the now-defunct Xstrata Resources Mick Davis would have wanted when he tried and also failed to convince the board of what he termed a "merger of equals" in 2009.

The board, with the help of Sir John Parker - who was brought in as chairman in the weeks after the proposal to help former CEO Cynthia Carroll - managed to persuade shareholders not to support the Davis proposal.

Now having also experienced rejection by the Parker-led board, Agarwal finds himself at the premier seat in a rival miner.

Now that's some gamesmanship. One can't help but marvel. The true genius, the more I think of it, is that he hasn't taken much personal risk either. Davis is either applauding or perhaps cursing his advisers in his own proposal.

Politically speaking, Agarwal's audacious move may be welcomed, given the country's BRICs alliance. Doors may just open in Pretoria and anywhere else where our principals play.

Now what he'll do with that access is anyone's guess. He has three years to sell his long-term plans for Anglo and perhaps convince stakeholders of a future best shared with his long-troubled Vedanta.

And while I am sure the game plan is to convince the people of the merits of this future, one has to consider Mark Cutifani' s stated strategy of concentrating the Anglo business on three commodities, namely copper, platinum and diamonds. It is a strategy well supported by market participants, given that the stock has more than doubled over the past 12 months.

story_article_right2

Due to stronger commodity markets, Anglo has had to scale down the pace of asset disposals to achieve this desired goal.

That slight shift in gear was understandable. But the overall strategy of focusing on the commodities has not been as keenly supported by Anglo's largest shareholder in the PIC.

Last year, Bloomberg quoted Dan Matjila as saying the strategy was predicated on balance-sheet distress, and solving it by selling assets wasn't a strategy in which they believed. Therein lay the cracks.

Something you'd think Agarwal would be working hard to exploit to favour his empire.

derbyr@sundaytimes.co.za or follow Ron on twitter @ronderby