Anglo American PLC agreed on Friday, November 4, 2011 that they would increase their stakes in the diamond miner Oppenheimer family De Beers for $5.1 billion in cash. Something Anglo have been trying to do, but Oppenheimers kept declining the buy. This will increase Anglo’s holding in De Beers stakes by 85 percent. This transaction between the two will take nine to twelve months to complete.
Anglo American has been the largest shareholder in De Beers market since it became a private company in 2001 and has been a De Beers shareholder before that.
Anglo American shares were up 2.8 percent in midday trading in London on Friday.
A London-based analyst at RBC, Des Kilalea said:
“A price of $5.1 billion is probably a bit on the cheap side, but for the Oppenheimers there was only one buyer. It was about 25 percent lower than RBC’s valuation. It was a clumsy structure that this cleans up.”
One of the main reasons Anglo America PLC decided to pay $5.1 billion for De Beers stakes is the market to China. China is now the world’s second largest market for De Beers diamonds. Anglo America estimates that by 2015, India, China and the Gulf countries will represent 40 percent of the global demand.
With that said, it has taken De Beers twenty years to convince Chinese women that the number of carats in a diamond is equal to that of dowry, but also a symbol of love.
In an interview with Francine Lacqua on Bloomberg Television, Cynthia Carroll, chief executive officer of Anglo, said:
“De Beers has the largest resources and reserves in the world today. The market is very, very strong. Demand will outstrip supply. We’re seeing in the first half of this year a tremendous increase in demand coming out of emerging countries as well as developed countries. In 2005, India and China represented about 8 percent of demand. By 2015, India, China and the Gulf will represent about close to 40 percent.”
De Beers Chairman Nicky Oppenheimer said in a phone interview with Bloomberg:
“They came to us with an offer. We thought it was a fair offer on the table, and we took time to think carefully about it. The family decided unanimously to accept their offer.”