What on earth is Anil Agarwal up to? That has puzzled the market since the chair and founder of Vedanta Resources bought a near 20% stake in Anglo American two years ago.
Next year his Volcan Investments trust must either pay up for the Anglo shares it bought with a loan, or extend the timeline on the bonds. Speculation of a potential takeover bid by Agarwal remains.
When he acquired the stake, in 2017, the mining tycoon shrugged off rumours that he planned a takeover bid for the multinational corporation, or that he was gunning for a board seat. Instead he insisted that the acquisition, which made his family trust the single largest shareholder in Anglo, was purely a personal investment. But of late Agarwal’s moves have helped to fan the flames of speculation as to what his real agenda might be.
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Last month, at the opening of Vedanta Zinc’s Gamsberg mine — one of the zinc assets it bought from Anglo — Agarwal accused Anglo American of losing the heart to develop SA. And at Anglo’s annual shareholders’ meeting last week, Agarwal voted against Marcelo Bastos’s appointment to the board. Though his objection was unsuccessful and the appointment was passed, Agarwal still got his point across, which is that he thinks Anglo should renew its focus on SA.
The Sunday Telegraph last month reported that Anglo has appointed three investment bankers — Morgan Stanley, Goldman Sachs and Centerview Partners — to draw up plans to fend off a possible takeover bid from Agarwal.
Agarwal made his move on Anglo in March 2017 when he acquired a 12% stake. The share price was around $15 — already substantially recovered from $3.50 a share a year earlier, when commodity prices bottomed and investors shunned the company for holding too much debt.
Peter Major, director of mining at Mergence Corporate Solutions, says: "At the time a lot of companies and investors were looking at Anglo, which was a very juicy target. But most of these dreamers weren’t in a position to do anything about it. I think Agarwal made a good deal, though he missed the real deal by 12 months."
Still, he made 100% from it, Major says.
Then, in the second tranche of the deal in September that year, he bought more shares at about $18 — also a good deal.
Volcan Investments, Agarwal’s family trust and the largest shareholder in Vedanta, funded the Anglo stake through a structure of exchangeable bonds.
Anglo has reportedly appointed three investment bankers to draw up plans to fend off a possible takeover bid
In a blog post last year headlined "Decoding Anil Agarwal’s mission ‘Anglo American’", AlphaValue equity analyst Varun Sikka wrote that the deal was intriguing as the financing structure did not require a sizeable cash outlay from Volcan Investments. Though the upside potential on Anglo shares was limited, there was also almost no downside potential.
John Meyer, mining analyst and partner at SP Angel, says Agarwal has been after Anglo for a while. The company, he says, "has good potential and it is probably the cheapest of the majors to buy".
But market dynamics have changed since 2017 and it’s no longer as easy, or cheap, to buy up large stakes.
Major says: "Anil was opportunistic at the right time when few others were and he got a good deal back then. It was very brave how he did it — borrowing to buy Anglo shares."
But, he says, it is highly unlikely that Agarwal will have such an opportunity again. "That huge 80%-90% commodity market drop is a once in 10 to 20 years pony trick".
Sikka says the emergence of Agarwal as the largest Anglo shareholder could be a game-changer for the company, though not in the immediate term.
As Anglo’s largest shareholder, Agarwal could facilitate a partial sale of the company’s nonperforming assets or even persuade Anglo to acquire Vedanta, which would give it direct access to the Indian markets, Sikka says.
Whatever the endgame, investors will be watching developments closely.
As Sikka says: "Anil Agarwal is known for his astute negotiation skills and has the reputation of pulling off next-to-impossible deals."
But if a takeover bid were on the cards, would Anglo shareholders be willing to be taken out? "Anil would have to offer a pretty good premium. If he offered a large-enough premium, I’m sure they’d consider it," says Major. He reckons the premium would have to be more than 30% above the recent $30 share price for investors to let go. "There are not that many listed mining companies with so many great assets," he says.
"Management are the ones who fight against these things the most.
"They are comfortable as is. But shareholders are pretty mercenary."
Vedanta recently withdrew its listing on the London Stock Exchange and trades only in India, and so will probably not be able to use shares in a potential takeover. "If Agarwal wants to buy Anglo he has to offer cash. No shareholder is going to take Vedanta paper."
Major expects Agarwal would have a hard time trying to convince any Anglo shareholder to support a takeover bid unless it is pure cash. Without that and a big premium, "I don’t think he’s got a chance in hell".
Vedanta Resources and Anglo American did not respond to a request for comment.
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