One has to be blind not to see the Anglo plan
October 30, 2009
By Justin Brown
The denial by Anglo American chief executive Cynthia Carroll, that the decision to change its management structure, axe managers and mark assets for sale was in any way related to Xstrata chief executive Mick Davis breathing down her neck, rings hollow.
The announcement of the changes came exactly one week after Xstrata said it would go no further with its merger proposal.
Carroll has stated that these plans were 18 months in the making and were agreed at a board meeting in June - the same month Davis sent his proposal to her and former Anglo chairman Mark Moody-Stuart. So the group sat on these ideas for four months? Unlikely.
What is more likely is that the changes were formulated or firmed up as a result of Xstrata's proposal. Carroll can't be seen to be giving any credit to Xstrata - of course they were her ideas and those of her board.
At the same time Carroll must be given credit for fighting off Xstrata's bid. In the end it proved relatively easy; Xstrata's proposal was an opportunistic bid that did not anticipate all the complexities that arose.
Hostile takeovers have a fundamental impact on the target companies, especially those perceived by investors to be underperforming. Local examples include Harmony Gold's failed bid for Gold Fields and Nedbank's attempt to buy Standard Bank. The same must be true for Anglo.
Maybe the truth is that Xstrata's proposal added to the pressure on Anglo management from the group's shareholders.
In particular they had been unhappy about overpaying for the Minas Rio iron ore project in Brazil, one of the key factors that had been blamed for it halting its dividend for the first time in 70 years. That dividend cut shocked the company's shareholders.
Given the global recession, that might seem a bit of an overreaction as Xstrata and Rio Tinto, also laden with borrowings like Anglo, halted dividend payments too.
The announced changes are aimed at winning back shareholders' confidence that Anglo can extract further returns from its operations. However, the cost cutting and debt reduction are coming at a great price - about 23 000 people, maybe more, could lose their jobs.
Anglo has also introduced for the first time seven commodity business units with management teams located at the key operations. This is a break from its centralised approach of running operations out of London and has an echo of Xstrata's decentralised structure.
At the same time the establishment of seven distinct divisions makes Anglo's structure similar to that of BHP Billiton, which is run along business unit lines.
Anglo also announced the departure of three senior managers, Philip Baum, Ian Cockerill and Russell King. The most interesting is Cockerill, who had been hailed as the captain of a sinking Gold Fields ship to head up Anglo's coal division. Less than 18 months later he has made way in the main for younger managers.
Finally, Anglo, which is looking to sell its UK building materials business Tarmac, announced that it would also sell two small assets in Brazil, steel producer Scaw Metals in South Africa, and its zinc interest to increase its mining focus and probably also to reduce the group's liabilities. These sales could garner up to $7 billion, it is estimated.
Carroll has improved Anglo's safety record by reducing fatalities by 36 percent to 28 a year. She has also improved the group's relations with the government.
However, her weakness has been in paying too much for assets, in contrast to her predecessor, who was criticised for being too conservative and cautious.
|
|
