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 familys 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
GRBs stake to 25%, leaving Anglo with 75%, with the
consideration reducing accordingly.
Its 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