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Gem Diamonds Achieves ‘Excellent Prices’ Despite Overall Softening of Diamond Prices

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Gem Diamonds Achieves ‘Excellent Prices’ Despite Overall Softening of Diamond Prices DIAMOND 9 November 2011 | Vol.26 No.683 By Chaim Even-Zohar INTELLIGENCE The Final Days of the Oppenheimer Diamond Dynasty De Beers Chairman Nicky Oppenheimer called it a “bittersweet time.” Those who talked to Nicky after the dramatic, though not wholly unexpected, announcement of the Oppenheimer family’s exit from the diamond empire it had created found him more sad than excited. “The discussions around accepting this [$5.1 billion] offer have been very difficult for Jonathan and me; after all, the Oppenheimers have been involved in the diamond industry for more than 110 years. However when presented with the offer from Anglo, we had to think in the wider context of what was in the best interest of the family as a whole. After much debate we came to the unanimous decision that the right way forward for the family was to accept Anglo American’s offer.” The end of any dynasty is generally shrouded in Nicky Oppenheimer drama – stuff that movies are made of and about which bestseller books are written. There is the carefully planned “public scenario,” the media-spin, the BRIEFS attempts to craft and manage the final version of the dynasty’s history and, what investigative journalists call, the “real behind the scenes story.” Lack of Natural Successor It was known that the Oppenheimer family wanted “out” of De Beers, especially Nicky’s sister, Mary, and mother, Bridget, but that Nicky really would have wanted his son to continue the Oppenheimer legacy. The Oppenheimers held chairman and director positions in both Anglo American, which was founded by Nicky’s grandfather, Ernest, in 1917, and in De Beers, of which Anglo American wrestled control in the 1920s , for about 100 years. Jonathan was groomed to lead A Confidential Service for Executives in the Diamond and Diamond 6913 2011 KP PLENARY 6915 4 CORNERS OF THE GLOBE 6917 DIGGING THE DIRT Jewelry 6919 MOVERS AND SHAKERS 6920 BRIEFLY NOTED 6921 OFF THE SHELF Business EDITORIAL the fourth Oppenheimer generation in the diamond dynasty. Botswana Puts Shareholders ‘on Notice’ One may recall the elated Daily Telegraph story of only A decade ago, the Oppenheimer family still owned some 8 a few years ago, in September 2005, announcing “Jonathan percent of Anglo American; this holding has dwindled to closer Oppenheimer, the heir apparent of the diamond dynasty which to only 2 percent today as the family has been offloading Anglo runs De Beers, moved a step closer to taking American shares mostly to Chinese buyers. (It may be recalled over from his father at the helm of the that, in 2006, the family holding company, E. Oppenheimer & family’s business interests when the Son, started to sell off it Anglo American’s shares to China Vision company announced a dramatic Resources. Further sales in 2010 brought the family’s holding to management shake-up.” The London below 2 percent.) daily continues: “For the past 18 De Beers’ shares are owned 45 percent by Anglo American, months, Mr. Oppenheimer, [then] 40 percent by the Oppenheimer family and 15 percent by the 36, has been managing director of government of Botswana, which had quietly been watching the the largest division of the company Oppenheimer disposal of Anglo American shares. Throughout the and its historical heart, called De past year, the financial markets had been awash with speculation Beers Consolidated Mines in that Anglo American may be looking to exit the diamond business. South Africa. … Following During Gareth Penny’s final days as De Beers Chief Executive the reorganization, Mr Officer, there had been market talk about a possible relisting Oppenheimer will now of De Beers. The Oppenheimer family had been rumored to be Jonathan Oppenheimer work closely with his “a seller” for many months. father Nicky at the The last thing Botswana wanted was to take the risk that top of the De Beers it suddenly would have a Chinese partner. It needed to put group. He will also chair the Canadian arm, which is expected in safeguards. It wanted to use its 15 percent as leverage to to open its first diamond mine in 2008.” control its diamond future. Botswana found that opportunity The sad fact is that Jonathan didn’t “have” what it takes when it renegotiated its marketing agreement with De Beers. to assume the reigns. Throughout the years, Nicky had often In the first few months of 2011, afterDTC Chief Executive Officer faced embarrassing questions about his son’s abilities – which Varda Shine and her team had completed all the negotiations were invariably rebuffed with fatherly love and passion. It didn’t with Botswana for a ten-year marketing contract, the negotiations change the facts. In the last few years, Nicky kept his son close suddenly grinded to a halt. The signing was delayed and delayed. to him allowing Jonathan to serve as “Head of the Chairman’s There were all kinds of excuses – lawyers took time, waiting for Office responsible for the Direction and Implementation of overall a new CEO to come in, etc. – but as we then reported in this Group strategy.” Whatever that means. publication, the sticking point was one single clause that would Over the past year, Nicky’s frantic attempts to catapult Jonathan into the leadership position were clear to all. When Sir John Parker announcing the appointment of the new De Beers CEO, Philippe Mellier, – a few days after Diamond Intelligence Briefs had first published his identity – Nicky repeatedly stressed the team decision of “Jonathan and I.” Indeed, in the first presentation to shareholders, Mellier expressed the words “Jonathan and Nicky” many a time. Jonathan joined Mellier on many of his meetings to the diamond centers, especially Antwerp. There was clearly a re-shifting and re-positioning of the Jonathan role in De Beers during the past year. The concerted efforts to “position” Jonathan came in the wake of Nicky being slighted by Anglo American Chair Sir John Parker, who refused to appoint Jonathan as a Director at Anglo American after Nicky decided to step down after serving there for more than 40 years. Sir Parker gave all kinds of “governance reasons.” These were lame excuses. To deny an Oppenheimer his rightful place in the board room of Anglo American is akin to refusing Mickey Mouse entry into Disneyland. The writing was on the wall. DIAMOND INTELLIGENCE BRIEFS 6910 EDITORIAL allow Botswana to renegotiate the 10-year contract in the event agreements. We believe that this is a matter of about six months there would be a change in the shareholding of De Beers. – and that the deal will be finalized in the second quarter of 2012. Both Anglo American and the Oppenheimer family’s Central Botswana will have the opportunity “to buy cheap” – but it Holding Ltd. company resisted that clause. A ten-year marketing still will need US$1.3 billion cash to do so. That’s a lot of money. contract is “bankable” – it has enormous value. A package of Moreover, it still may be “overpaying” since a minority share De Beers’ shares is worth far more with a 10-year guaranteed should be priced lower than a controlling shareholding. diamond off-take agreement with Botswana than without it. The Last Thursday, when Anglo American Chair and CEO together agreement guarantees a 10-year orderly cash-flow. The two with Nicky flew into Gaborone to inform President Ian Khama major shareholders in De Beers didn’t want that clause – but of the deal, the Botswana president had plenty of reasons to Botswana didn’t give in. be satisfied. The one clause that had held up the De Beers marketing agreement for such a long time had paid off. Never No Willing Seller-Willing Buyer Environment before had the country exercised the amount of leverage and In the end, Botswana made a compromise with its shareholders. influence on a De Beers share transaction. The 10-year marketing contract would NOT be renegotiable in the event a change in shareholding would take place among the EXISTING shareholders. This would have dramatic financial consequences for Nicky: to get optimum value for his family’s shares in De Beers, he would need to sell his stake either to Anglo American or to Botswana (or to both). Selling to a third party became a lesser option. Giving the appropriate spin, Nicky told staff and clients that “if we were ever to sell our stake in De Beers, Anglo American was always going to be its natural home as they have been major shareholders in De Beers since 1926 and have a good knowledge of the diamond business.” With all due respect to Nicky, if another party would have paid more – the family would undoubtedly have gone for the higher option. But Botswana denied them the opportunity to shop around. The government used its leverage artfully. Sales Price is Below Market Value No one will cry too much when getting a US$5.1 billion price – and an option for additional payments under certain circumstances. The leading diamond analyst in the market, DTC Botswana Sorters Royal Bank of Canada’s Des Kilalea, thoughtfully notes that “the price agreed is some 30% below our valuation.” The US$5 The Effects of One Clause billion price tag sounds less attractive if one is being told the Anglo American is really a winner here. A few months ago, very same day that the true value would be US$1.5 billion more. it was willing to sell out. The markets called Anglo American There are other estimates that put the actual market price even either a buyer or a seller of De Beers’ shares; it was clear that higher, but that isn’t really relevant.
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