Anglo America

It is a short walk from the imposing former headquarters of Anglo American at 44 Main Street, Johannesburg, to the small office in which Nelson Mandela and Oliver Tambo defied the authorities to set up a law partnership in 1952.

The moral is that the magnificence of a building is not a reliable guide to the enduring influence of those inside. Ernest Oppenheimer founded Anglo American in 1917 and laid the cornerstone of 44 Main Street in 1938. By the 1980s, his son Harry pulled the strings of several mining and financial conglomerates controlling 30 per cent of the country’s stock exchange.

Mandela and Tambo went on to lead the African National Congress and to transform the country. After Mandela became president, Anglo shifted its primary listing and head office to London in 1999. Julian Ogilvie Thompson, then executive chairman, celebrated “the end of the financial structures that were imposed on us by apartheid”.

The outcome has not been pretty. When Anglo moved, it hoped to close the 25 per cent discount at which its shares traded to their net asset value by becoming simpler. Its market capitalisation has fallen to only £5.5bn, about a 60 per cent discount. It is a lot more transparent than it used to be, and is clearly in a mess.

Anglo was not apartheid’s victim but its beneficiary, not only allowed to exploit black workers but shielded from competition. That encouraged it to behave like the old nickname for the Oppenheimer family empire, “the octopus”. It spread tentacles throughout the South African economy, extending into Botswana through De Beers, the Oppenheimer diamond group.

Anglo was not a state-owned enterprise but an enterprise that became a state — a skilled bureaucracy expert at controlling resources and wielding hegemony. Its elite cadre of Anglophile managers were not as astute as they thought they were, or were clever in a way that lost relevance. Some expected, as one former rival executive puts it, “to be rewarded for showing up”.

Anglo’s announcement this week that it lost $5.5bn last year and will try to repair its balance sheet by selling swaths of coal, iron ore and other assets brings to an end a brief period of hope that it might transcend its South African roots. It has no choice but to retrench — its debt was downgraded to junk by Moody’s, the rating agency.

Anglo is not alone is facing financial stress amid the commodities crisis triggered by the slowdown in China. Glencore, the trading company that was severely overstretched by buying Xstrata in 2012, is now selling assets to reduce debt. Rio Tinto has cut its dividend after making heavy losses and BHP Billiton is likely to follow.

But Anglo’s path to this fate was its own. After moving to London, it failed to spot the significance of China’s rapid economic growth and the demand for commodities it would unleash. Its steady, slow-moving culture left it stranded behind rivals.

It then overreacted under Cynthia Carroll, who became chief executive in 2007 with a mission to refit its culture to suit its global status. She championed the purchase of Minas-Rio, a Brazilian iron ore mine that cost $8.3bn to develop, loading it with $13.5bn of net debt. Having bought at the top, it is being forced to sell at the bottom.

Leaving South Africa, in other words, did not work. A structure and culture that was highly experienced at navigating the closed, politicised world of apartheid South Africa was outmatched by global capital markets. “It felt like we were being compelled to do things it was not in our nature to do,” says one Anglo executive.

This contrasts with HSBC, the bank founded by expatriate British merchants in Hong Kong in 1865. Having debated whether to return its head office to Hong Kong (as I earlier argued that it should), HSBC this week decided to stick with London. Despite its difficulties with global expansion under a similar cadre of expatriate managers, it has made the leap.

HSBC is not the only contrast — other South African businesses have managed to expand in Africa and globally more smoothly than Anglo has done. For its London listing, Anglo sold a 16 per cent indirect stake in South African Breweries. The value of SABMiller, which is merging with AB InBev, now dwarfs that of its former shareholder.

SAB is one of a group of companies, especially in financial services, retailing and communications, which have flourished in the post-apartheid era. They include MTN, the mobile phone group that has expanded across Africa (despite being fined $3.9bn by regulators in Nigeria) and Woolworths, the grocery and clothing chain, which has entered Australia by acquisition.

Anglo is now restructuring itself to a far smaller group, focused on diamonds, platinum and copper. It will operate diamond and platinum mines in South Africa but will be a fraction of its former self. Mosebenzi Zwane, the mining minister, pointedly described its disposal of other mines as “an opportunity for new entrants”.

Some qualities of the old Anglo will be missed. It was conservative and slow but more responsible and less exploitative than some operators. It was determined, deliberate and highly effective in its time. But like the octopus, it was beautifully adapted to its own ecosystem and unable to survive when it was placed elsewhere.

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