http://www.nytimes.com/2001/02/15/business/16CND-DIAMOND.html
February 15, 2001
Oppenheimer Family to Take De Beers Private
By ALAN COWELL with RACHEL L. SWARNS
LONDON, Feb. 15 — The Oppenheimer family, which has controlled much of the
world diamond trade for more than 70 years, has tightened its already
powerful grip with a $17.6 billion agreement to turn De Beers into a private
company in partnership with its sister corporation, Anglo American, and other
close allies.
The deal, announced in London and Johannesburg today, would transform a
cumbersome and often opaque relationship between Anglo American, the world's
largest mining company, and De Beers, the dominant diamond miner and trader,
in which each owned one-third of the other's stock.
The deal offers Anglo American, whose stock is listed in London, an escape
from the cross-holdings, which have depressed its stock price and which would
otherwise soon be subjected to penalties under new exchange rules. In return,
Anglo American would financially support the creation of a new private De
Beers, delisted from stock exchanges in South Africa and Switzerland, where
components of it now trade.
The new De Beers would still be run by Nicky Oppenheimer, the grandson of Sir
Ernest Oppenheimer, the founder of Anglo American. The Oppenheimers have
controlled the two intertwined businesses since the 1920's. "This has to be
the biggest change since those days," said Gary Ralfe, De Beers's managing
director, in a telephone interview.
Particularly during South Africa's apartheid era, Anglo American and De Beers
were often seen by outsiders as a single secretive giant whose complex web of
investments threaded through the whole economy. Since Anglo American moved
its primary listing to London from Johannesburg in 1999, it has sought to
establish a clearer corporate identity to satisfy investors. Nevertheless,
the deal extends Anglo's powerful interest in De Beers, which controls about
two-thirds of the world's rough diamond trade.
Under the agreement, De Beers stockholders would be bought out by a
consortium to be called DB Investments, in which Anglo American and the
Oppenheimer family would each have a 45 percent stake. The remaining 10
percent would belong to Debswana, a mining venture co-owned by De Beers and
the government of Botswana, a major source of diamonds.
The deal values each De Beers linked unit — which combines shares in the
South African and Swiss-traded De Beers entities — at $43.17. That price
includes $14.40 in cash, 0.43 Anglo American share and the right to a $1
dividend payment.
Over all, the deal values De Beers at $17.6 billion, about 10 percent more
than the $16 billion figure used on Feb. 1, when the companies first said
they were in talks, and 31 percent more than its closing market price on Jan.
31. Mr. Ralfe broke the value down to $8.3 billion for the diamond business
and $9.3 billion for De Beers' holdings of Anglo American stock.
[In New York trading, units of De Beers rose $1.50 to close at $42 today;
Anglo American's shares rose 69 cents, to $65.56.]
"We are bringing financial muscle; the Oppenheimers are bringing literally
generations of experience," said Tony Lea, Anglo American's finance director,
in an interview.
Responding to critics' concerns about the deal, both Anglo and De Beers said
the new company would not retreat into corporate secrecy now, when De Beers
is moving into diamond retailing in partnership with LVMH, the luxury goods
company, and the diamond industry is under pressure from advocacy groups to
distance itself from the illicit trade in so-called conflict diamonds from
war-torn parts of Africa. "Once De Beers goes private, it has no intention of
disappearing behind locked doors," Mr. Oppenheimer said.
Mr. Lea said the company and its shareholders would insist on openness. "De
Beers is very conscious of the whole issue of conflict diamonds," he said.
"It doesn't want to be seen as a secret business."
Even so, Justin Pearson-Taylor of Standard Equities in Johannesburg said the
deal meant the diamond industry "won't become as open as it would have."
An issue still unresolved is De Beers's legal status in the United States,
where half of all retail diamond sales are made and where De Beers's
historical control of the diamond trade is the subject of a long antitrust
inquiry. Mr. Lea said Anglo American had "no concern at all" that its own
operations in the United States would be affected by its increased stake in
De Beers.
Still, in a satellite video hookup from Johannesburg, Mr. Oppenheimer said,
"The new owners of De Beers will still have to wrestle with" the antitrust
investigation.
The company hopes for a more sympathetic hearing from the Bush administration
than it got from the Clinton administration, which rebuffed a settlement
feeler from De Beers last year. "The change in administration is much more
positive to De Beers than changing from a public to a private company," Mr.
Ralfe said.
While the deal would strip the Johannesburg stock exchange of its bluest blue
chip, Mr. Oppenheimer said the net effect of the deal for South Africa would
be positive, a view echoed by the country's president, Thabo Mbeki, in
remarks to the South African Parliament.
Mr. Mbeki thanked the two companies for discussing the deal with the
government before concluding it. He cited the $2.9 billion of hard currency
from the buyout that would flow immediately into South Africa as an important
economic benefit.
"I would also like to express our sincere appreciation for the confidence in
the new South Africa demonstrated by a group and a family that has played a
major role in our country's economic growth and development for more than a
century," Mr. Mbeki said.
