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Flash Analysis - De Beers May Go Private

Feb 1, 2001 4:46 PM   By Martin Rapaport
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By Martin Rapaport

In a surprise move to take De Beers private a consortium consisting of the Oppenheimer family (45%), Anglo American (45%), and Debswana (10%) are considering an offer for De Beers outstanding shares at about $40 per share.

At today’s NASDQ opening, De Beers ADR (DBRSY) shares surged 19% from $32.50 to $39 and Anglo (AAUK) was up 4% to $64.5. While the share prices have settled down slightly the deal is certain to attract great attention in the media and focus attention on the diamond industry.

So what’s going on? First of all we should recognize that given all the cross-ownership between De Beers, Anglo and Oppenheimer we are dealing with the mother of complex deals. The rather straightforward but cryptic Cautionary Announcement by De Beers has some analysts thinking and newspapers such as South Africa’s BusinessDay reporting that the deal is merely a complex takeover of De Beers by Anglo. In the opinion of this writer, the press release means what it says . This group wants to take over De Beers. We are dealing with a leveraged buy out (LBO) that intends to restructure De Beers and take it private. Please note that the analysis below is completely unconfirmed since no one at De Beers can talk while the deal is in progress.

De Beers has just under 400 million shares. At about $40 per share were talking a $16 billion deal. Anglo has just over 407 million shares at about $64 per share its worth $26 billion. Now De Beers owns 35.4% of Anglo worth $9.2 billion. So the group buys De Beers for $16 billion and flips off Anglo for $9.2 billion and all they have to come up with is $6.8 billion. The deal gets really wonderfully complicated since Anglo currently owns 32.2%, Debswana 5%, and Oppenheimer 2.6% of De Beers. Were not going to even try to figure out how the new partners will reallocate shares and come up with cash, except to say it looks like Nicky Oppenheimer is going to be putting very serious cash into the deal. When the dust settles we would expect ownership of De Beers to mirror the press release. De Beers will not own any Anglo shares but Anglo will own 45% of De Beers.

A primary objective of the restructuring is to rid De Beers of their Anglo shares so that the companies share price can go up. The company might be going private so that it may restructure further by say spinning off the DTC so that it will be in compliance with U.S. anti-trust requirements. Another benefit is that it can go public, significantly increase value by implementing the strategic plan that includes the downstream branding initiative and then go public again at much higher multiples. It is really too early to tell, but we will keep our readers posted as the situation develops.
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Tags: Anglo American, Compliance, De Beers, Debswana, DTC, South Africa
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