Vedanta weighs $7 billion merger with Anglo American South Africa

Mumbai: Volcan Investments Ltd, the family trust of Vedanta Resources Plc. founder Anil Agarwal, is considering a plan to acquire control of Anglo American Plc’s South African business by merging Vedanta Resources with the South African unit via a share swap, two people directly aware of the plan said.

The merger of Vedanta Resources and Anglo American South Africa will create an entity valued at about $7 billion and eventually give Volcan Investments control of the merged entity, the people said, requesting anonymity. Agarwal, through Volcan, already owns a 19.35% stake in parent Anglo American.

The control of Anglo American South Africa will give Agarwal, who rose from a scrap metal dealer to become a metals billionaire, control of a company that owns the iconic De Beers, the world’s largest diamond producer.

Volcan Investments on Monday offered to purchase the shares in Vedanta Resources that it does not already own and then delist the company from the London Stock Exchange, as part of a plan to simplify the company’s structure.

“So, once Vedanta Resources merges with Anglo American SA as per the plan being thought about, Volcan will become a promoter shareholder in the merged entity. Volcan will first attempt to secure a board approval for taking over Anglo American SA, whose value is estimated at around $4 billion, but even if that does not happen, Vedanta Resources will look to increase its stake to over 50% in Anglo American SA, which will increase Volcan’s economic interest in Anglo American,” said one of the two people cited above.

Anglo American SA’s businesses include four firms—Anglo American Platinum Ltd, Coal SA, De Beers Consolidated Mines and Kumba Iron Ore Ltd. The four units own assets worth around $12 billion in South Africa.

At present, both Agarwal’s Vedanta Group and Anglo American are valued at around $35 billion each.

Marcelo Esquivel, a spokesperson for Anglo American Plc. declined to comment on the proposed takeover in response to an email. A spokesperson for Vedanta Group also declined to comment.

An email sent to Volcan Investments on Monday remained unanswered till Tuesday night.

Also read: Cheering Vedanta Ltd’s elevation as listed flagship may be premature

“The idea is to first buy back the public shares of Vedanta Resources, which will save costs of being listed and make holding structure simpler,” said the second person. “The second stage of the strategy is to take over Anglo American SA so that Volcan’s economic interest increases further in the company and is able to gain from Anglo’s growth. In the third stage, an option is to list the merged entity, which will ultimately benefit all stakeholders.”

He said the strategy will potentially help Vedanta create one of the world’s biggest mining giants and compete with larger rivals such as BHP Billiton Plc., Rio Tinto Plc., Vale SA and Glencore Plc.

Agarwal’s Volcan Investments, which currently holds 66.53% in Vedanta Resources, offered 825 pence a share, around 14% premium to the company’s three-month volume weighted average price, to buy out the 33.5% stake the company does not own for about $1 billion.

Vedanta said it does not find the London listing necessary to access capital.