Merger of equals? I doubt it. The biggest and hottest mining news, whilst not entirely unexpected, remains a shock too many because it signals an end to an era and the death of a South African institution that cannot be taken lightly, it is bit like imagining a world without IBM, Ford or GE. The Xstrata initiative has been rumoured for a while and the announcement of a proposed merger of equals ring hollow in light of strong rumours that the Xstrata initiative was partly at the behest of some influential and disillusioned Anglo shareholders. The discussions with shareholders are particularly interesting and are an indication of the disillusionment with Anglo management in general and Cynthia Carrol in particular.
The deal, if successful will see probably see the name Anglo American assigned to history, much like some of their BEE offspring. Something that would have been considered inconceivable ten years ago is now imminent. In a very short time a great and proud entity were transformed into a weak and vulnerable target for predators. A mere eight years ago Anglo was the top miner in the Forbes list of top 2000 companies, at position 113 with BHP Billiton coming in second at 127 and Xstrata a lowly 764. In the 2008 list, Anglo had dropped to 266 with BHP Billiton, the number one miner, at position 183 and Xstrata at 272. Ranking miners the mining companies, Anglo has gone from number 1 in 2000 to number 5 whilst Xstrata climbed from position 16 to position 6. A truly remarkable slide in fortunes.
The embarrassing disintegration of Anglo American despite its high quality assets can be laid squarely at the door of management and an all out governmental assault on business and the mining industry in particular.
Tony Trahar during his tenure in 2005, made the fatal mistake of enraging the vindictive Thabo Mbeki with his “Anti-African” statement on South Africa’s perceived risk profile with investors. His justified criticism was however not openly supported by his peers, a common South African business leader’s disease, akin to the cowardice Trevor Manual recently referred to, and he was hanged out to dry. Anglo American’s management of BEE policy, partly prompted by their need for acceptance and perceived dependence on government goodwill, was less than successful and their focus on political issues resulted in them taking their eye of the ball, which in turn caused the company to lose direction.
At the end of 2007, with great fanfare, Trahar was replaced by Cynthia Carrol, who was to lead Anglo at astounding pace in a desperate dash to oblivion. Her appointment as CEO was hailed by many. She was going to bring a new approach to South African mining, change our poor safety culture and turn Anglo into a mean effective super miner. She was, being American, hailed as far superior species to stereotype South African CEO’s and Chairmen, suitable for companies like BHP Billiton, Rio Tinto and the unmentionable Swiss upstart with the funny name. In reality, Cynthia Carrol was soon found wanting. The relationship with the government did not show a perceptible improvement, on the contrary, her naivety and approaches were seen as weakness and resulted in further exploitation by officials, the politically connected and “The Entitled”, more money and assets were poured into bottomless BEE pits, executives left the organization and their replacements are rumoured to feel isolated. Public spats with the likes of Davidson and Trahar, in the hallowed halls of Anglo American, were akin to mutinous behaviour and the company clearly found itself on a precipice. The inability of Anglo Management to judge the climate in South Africa, and Africa for that matter, could not be ameliorated by there high quality mineral resources.
Unfortunately, in my opinion, Carrol will not do the honourable thing and fall on her sword. The reference to a “Merger of Equals” is nothing more than an attempt to allow her to maintain some semblance of respectability as a business leader. I do not see how the retention of Carrol will add value to a merged entity. The value in Anglo lies in their mineral assets and their people, value that Anglo executive management has been unable to unlock for a long time and the real value in the merger lies in the leadership and proven ability that Xstrata brings to the party. This was born out by the sharp rise of the Anglo share price on the announcement and the drop in the Xstrata share price.
The role played by politicians in the demise of Anglo American must not be ignored. The manner in which the government, through mindless doctrine and misguided economic policy, has set out to destroy the mining industry under the guise of corrective action, will haunt us for a long time to come.
The message from the market is clear; get the deal over and done with, thus reducing insecurity and uncertainty. Anglo shareholders want the deal, Xstrata shareholders do not like the “Merger of Equals” idea and who can blame them, since it may imply the animal that results from this union may have more than its fair share of Anglo genes and culture. To those who are worried and concerned, remember this, a year ago the mighty Anglo American, once referred to, as “The Evil Empire” would have been highly offended by references suggesting they were equal to the likes of Xstrata.