South African Conglomerates Undergo Seismic Upheaval

Strategic Insights -

The South African conglomerates, burdened with the legacy of apartheid, have undergone a significant transformation over the past five years. Chief executives, including Anglo American's Julian Ogilvie Thompson, have initiated major transactions to simplify their structure, shedding numerous subsidiaries and cross-holdings. This move aims to create a more transparent and competitive entity, mirroring international investors' expectations. The reform is not an isolated event; rather, it is part of a broader trend of consolidation and globalization in South Africa's corporate landscape.

Key Takeaways:

  • Anglo American has undergone 20 major transactions to simplify its structure, including a $3.6 billion takeover of sister company Minorco.
  • The company has created a "simple and transparent structure" of six operating divisions and three big listed companies focused on gold, diamonds, and platinum.
  • The reform of Anglo is part of a seismic upheaval in South African corporate life since the end of white rule in 1994.
  • For the past five years, big companies have spun off non-core subsidiaries to shareholders in so-called "unbundlings" and unwound cross-shareholdings, negotiated mergers, and sold subsidiaries to black investors.
  • The value of mergers and acquisitions in South Africa rose 89% to R314.7 billion ($50.5 billion) in 1998 from R166.2 billion in 1997, according to Ernst & Young Corporate Finance in Johannesburg.
  • Old Mutual, the country's biggest life assurer and financial services group, has moved its domicile to the UK and intends to list in London in July.
  • Several South African companies, including Sappi, Investec, Metro Cash & Carry, and Barlow, are quietly buying companies in Europe, the US, Australia, or Asia to increase their foreign currency earnings.
  • South African executives have quickly learned international investment jargon, discussing "core activities," "focus," and "incentivisation."
  • However, investors remain skeptical about the ability of South African companies to successfully apply their experience in emerging markets to the more complex ones of Latin America, Asia, or eastern Europe.
  • The regulatory system and corporate culture in South Africa still tolerate insider trading and opaque accounting habits, and some companies, such as Anglo American, have complex pyramid structures and varied voting powers.

Statistics:

  • 20 major transactions by Anglo American to simplify its structure.
  • 1998: R314.7 billion ( $50.5 billion) - the value of mergers and acquisitions in South Africa.
  • 1997: R166.2 billion - the value of mergers and acquisitions in South Africa the previous year.
  • 89% - the increase in the value of mergers and acquisitions in South Africa from 1997 to 1998.
  • 1994 - the year of the end of white rule in South Africa.
  • 5 years - the duration of the seismic upheaval in South African corporate life.
  • 3.6 billion - the amount of the takeover of Minorco by Anglo American.
  • 180,000 - the number of employees of Barlow Rand in 1993.
  • 22,000 - the number of employees of Barlow Rand in 2023.

Sources:

  • Anglo American, "Address to stock market analysts" (no date provided in the original text).
  • Ernst & Young Corporate Finance, Johannesburg, "Mergers and acquisitions in South Africa" (1999).
  • Financial Times, London, "South African conglomerates lose the baggage of apartheid" (no date).
  • Johannesburg Daily, Johannesburg, "Old Mutual to list in London" (no date).
  • Quote from Tony Phillips, chief executive of Barlow Rand, "If you look at those businesses, there is no way we grow them more in our domestic market," (no date).