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Two months after the
Oppenheimer family sold their 40-
percent stake in De Beers, and in
the process caught the diamond
industry by surprise, the focus has
moved to what led the family to exit
diamonds after many decades of
involvement, what it will do with
the $5.1 billion it is to receive from
Anglo American, and how the giant
global miner will develop the De
Beers brand.
On quitting the Anglo board
earlier this year, De Beers chairman
Nicky Oppenheimer said: “There
comes a time when it’s right to
stand aside and allow others to carry
the baton. For me, that time is now.
It was an extraordinarily emotional
and difficult thing for us. I think
also difficult because the family
have been in diamonds since my
grandfather came to South Africa in
1902.”
According to reports, the
decision of the family to sell its
stake was based on three main
factors: succession planning; the
drop in the value of its mining
interests and the possible need to
again inject capital; and the
possibility of taking the money and
investing in more profitable enterprises throughout Africa. |
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| Photo on center : Mr. Nicky Oppenheimer |
For Oppenheimer, aged 66,
the dream had been for his son
Jonathan, 42, to become the fourth
generation of the esteemed family
to become chairman of the De Beers
board. Educated at Oxford
University, just like his father and
grandfather, Jonathan had been
involved with De Beers for 20 years,
gaining experience in a range of
areas of the company’s operations.
Meanwhile, Peter Major, mining analyst at Cadiz Corporate
Solutions in Cape Town, believes
that Jonathan Oppenheimer himself
may have little sentiment for the
diamond trade, and less attachment
to it than his father and grandfather. “Why should he have the same
passion and vision and desire that
they did?”
Despite Jonathan’s route to
the chairmanship of De Beers being
blocked, Nicky Oppenheimer
believes that his son is the future
leader of the family’s business
interests. “Jonathan will certainly
lead this process,” his father said. “I
am, after all 66; while I am active
and not retired, he is the man that is
going to do the business,” he told
the media following the
announcement of the sale of the
Oppenheimers’ stake to Anglo
American.
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| Photo on right : Mr. Jonathan Oppenheimer |
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Although he declined to give
details of the family discussions
regarding the sale, Nicky
Oppenheimer said it was a
unanimous decision, and that the
family would be active in managing
its wealth. “No doubt everybody is
going around speculating about
what went on or didn’t go on. We as
a family act together and [sister and
shareholder] Mary is extremely
supportive of the process of finding
new business to do,” Oppenheimer
told Reuters. “None of us are the
sort of people who think you should
bury your talents in the ground.”
Where will the family invest
the money it receives from the sale?
Jonathan Oppenheimer has
reportedly being pushing for
widespread investment in Africa.
And that was largely confirmed by
his father who said: “Clearly we
have a bias toward Africa, we are
based in South Africa so we will be
looking for opportunities here. We
are looking for opportunities in
Botswana where we have good
connections and then elsewhere in Africa.”
The family is said to be in
talks with an Africa-focused body
to establish a joint venture worth
about $300 million. The family
entered a joint-venture $300 million
fund private equity fund with
Singapore’s Temasek Holdings in
August. Over the past four years the
family’s investment arm E.
Oppenheimer & Son has begun
concentrating more on African
investments outside the diamond
industry, such as healthcare,
agriculture, media, retail, at the
instigation of Jonathan
Oppenheimer. The family will
maintain a stake of just under 2
percent in Anglo American as well
as other investments such as a private
equity business investing in midsized
South African companies. |
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| Photo on left : Ms Mary Slack |
One analyst said that investing
in Africa was fairly clear given that
the continent is seeing strong
economic growth. “Africa is
growing at 6 percent per annum. It
makes good economic sense,” he said. There also exists the possibility
that the family could return to the
diamond business, after all the deal
with Anglo American only stipulates
that they stay away from the business
for two years. “It’s possible, of
course,” said a London-based
source. “But given that the
Oppenheimers are getting out of
the trade for solid business reasons,
it is difficult to imagine them coming
back to it.”
Indeed, it is claimed that it
was the impact of the 2008 global
financial crisis which led to deep
divisions within the family over the
direction their investments should
take. Selling their stake to Anglo
American, even at what some
analysts estimated as a discount of
around 25 percent, enables the
Oppenheimers to preserve their
fortune and enter new business
areas where return on investment is
higher and gained quicker.
The Oppenheimers’ apparent
disenchantment with diamonds is
illustrated by the speed with which
the family decided to exit De Beers
having reportedly turned down
informal offers from Anglo for its
share of De Beers for some time.
Financial market volatility and
recession on the horizon reportedly
worried some members the family,
notably Nicky’s sister Mary Slack,
particularly after the family had
already seen the Oppenheimers’ net
worth fell during the 2008 crisis. |
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The family had to pump
millions into De Beers, which was
forced to go cap in hand to
shareholders as diamond prices
slumped. “They had to put $400
million in cash into De Beers, which
they didn’t have. And they had to
borrow that money against their
stake in Anglo American,” one
source familiar with the family told
the media.
The family was in a bind,
since the stake in De Beers lost
value and the family holdings
outside De Beers were tied up
largely in private equity, where
exiting with a profit was some years
away. That led some family
members, led by Slack, who has
equal voting rights in the family, to
question the Oppenheimers’ continued involvement in De Beers.
“She would have been observing
this [financial crisis] and seeing their
wealth really decimated. She was
very uncomfortable with where
everything was going,” said the
source.
De Beers has been fighting a
huge battle against its debt problems
for much of the past decade. Net
interest bearing debt was $3.2 billion
at the end of 2009 and $1.76 billion
at the end of 2010, compared to
2000 when it had a net cash position
of $1.35 billion. For the
Oppenheimers, that was also likely
to have been a convincing factor in
deciding to sell off its share. |
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As for the future of De Beers,
it has long since been a pioneer in
bringing together diamond mining,
trading and marketing. It also took
its first steps in the retail sector a
decade ago as it opened stores across
the world in a joint venture with
LVMH Moet Hennessy Louis
Vuitton, the world’s leading luxury
goods company and recently said it
plans to open more outlets in China
and the Gulf region. On expanding
De Beers’ diamond retail business,
Anglo American Managing Director
Cynthia Carroll said it was too early
to discuss what might evolve, but
mentioned the strong upside
potential in Asia.
Speaking to the media in
November after the announcement
that the Oppenheimers were selling
to Anglo American, Carroll
appeared to indicate that the prospect
of a retail expansion was possible.
Given that Anglo American will not
be under financial strain as a result
of the acquisition, some analysts
suggest this means it will have
resources available to expand De
Beers’ operations.
Even though the company will
be able to pay the $5.1 billion price
from cash holdings and an existing
credit facility, speculation continues
that it might list De Beers, making it
Ms Cynthia Carroll
again a public company following
its delisting in 2001. “We’re
interested in the business as it stands
right now, and taking it further,”
Carroll said without elaborating. She
expressed her confidence that the
“iconic” De Beers brand would
enable the diamond giant to capture
the opportunities of the “rapidly
evolving diamond market”.
The benefit of having Anglo
American as a major shareholder in
the current global financial climate
is clear for De Beers, said a source
close to the group. “While one will
miss the Oppenheimer involvement,
there is a strengthening of
shareholders. Anglo has been an
amazing shareholder in the
recession,” the source commented. |
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