Anglo American’s De Beers purchase explained

Author: | Published: 17 Nov 2011
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Lawyers on the Anglo American/De Beers deal navigated third party pre-emptive equity rights and utilised an anti-embarrassment clause in the $5.1 billion acquisition.

Anglo purchased a 40% stake in the diamond company from CHL, which holds the Oppenheimer family’s shareholding, taking its holding to 85%.

However the Government of the Republic of Botswana (GRB), which holds a 15% stake in De Beers, holds a shareholders pre-emptive right of 10%. If exercised, this will take GRB’s stake to 25%, leaving Anglo with 75%, with the consideration reducing accordingly.

“It’s not just your normal M&A transaction where you have two parties,” said Rupert Weber of Maitland, which advised CHL. “Basically there are three parties in a sense that you have to cater for the fact that the GRB may or may not exercise its pre-emptive right.”

The merger is governed by English law, and conditions precedent require Anglo American shareholder consent and a host of regulatory, antitrust and third-party consents.

An anti-embarrassment clause states that if Anglo American lists De Beers on a stock exchange within the first year, it must pay CHL 20% of any increase in the attributable value of the De Beers equity. If a listing occurs in the second year, Anglo will pay 10% of any increase in value.

The $5.1 billion consideration increases by 3.5% per annum from November 4 until financial close. Any dividends or interest on shareholder loans paid during that time will be deducted from that amount.

If the deal is not completed within nine months from November 4, Anglo can pay $50 million to extend the period for another three months, or it must pay a break fee of $75 million. However Weber said this scenario is unlikely as the parties know each other and the asset well.

Details of the representations and warranties will be included in a shareholder circular to be sent out at a later date.