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Thursday, February 23, 2012

End of an era: South Africa’s Oppenheimer dynasty sells off key stake in De Beers

Published On Sat Nov 26 2011

Nicky Oppenheimer heads the clan equivalent of the Rockefellers.

Marius Bosch,
and David Dolan
Reuters News Agency

JOHANNESBURG—There is nothing intrinsically valuable about diamonds. The fact that we think of them as precious is mostly thanks to South Africa’s Oppenheimer dynasty. It is they who, with a bit of help from an American advertising man, sprinkled the rocks with romance and convinced the world that diamonds are forever.

That makes the family’s exit from the diamond industry all the more surprising. Africa’s second-richest family, after Nigerian food and cement tycoon Aliko Dangote, sold their 40 per cent stake in De Beers to Anglo American this month for $5.1 billion (U.S.).

“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,” current De Beers chairman Nicky Oppenheimer told Reuters.

But stung by the global financial crisis and wrestling with family discord over the direction their investments should take, the Oppenheimers have sold out to preserve their fortune.

Headed by Nicky Oppenheimer, the clan is South Africa’s equivalent of the Rockefellers. The family mansion in Johannesburg — the gardens are open to the public and require the services of 45 gardeners — has housed generation after generation since 1922.

Critics say the Oppenheimers benefited under apartheid but Harry Oppenheimer, who was De Beers’ chairman for 27 years, was hated by many in the white political elite and ordinary Afrikaners, not least because he supported the creation of black trade unions, provided housing for black employees and encouraged education.

When former British Prime Minister Harold Macmillan made his “Winds of Change” speech in South Africa’s whites-only parliament in 1960, drawing the wrath of the apartheid government, he was a guest at the Oppenheimer home.

The family insist they still take decisions as one and say they plan to invest “a large part” of the proceeds in Africa. One banker familiar with the matter said the family was already in talks to start another joint-venture private equity fund, similar to the $300 million (U.S.) fund set up with Singapore’s Temasek Holdings in August.

The odds are good that a big chunk of the $5.1 billion will be reinvested in Africa. Over the past four years the family’s investment arm E. Oppenheimer & Son has begun concentrating more on African investments outside the diamond industry — healthcare, agriculture, media, retail — at the instigation of heir-to-be Jonathan Oppenheimer. The family will maintain a stake of just under 2 per cent in Anglo American as well as other investments such as a private equity business investing in mid-sized South African companies.

A banker close to the family said the Oppenheimers are in talks with an Africa-focused entity to set up another joint venture worth about $300 million.

“It’s not about optics. Africa is growing at 6 per cent per annum. It makes good economic sense,” he said.

The family had long rebuffed informal approaches from Anglo for its share of De Beers. But when Chairman John Parker tried again in September, he found Nicky Oppenheimer more receptive.

The shift is a reflection of several pressures on the family, not least turbulence in financial markets and recession clouds on the horizon. That worried some in the family — particularly Nicky’s sister Mary Slack, according to mining industry sources — who had already seen the Oppenheimers’ net worth tumble during the 2008 crisis.

Though diamonds have been among the best performing commodities this year, sales have been hit by the global slowdown and fears over the euro zone’s debt crisis. There is no single marketplace for diamonds and pricing complex and opaque.

De Beers told investors in July that rough diamond prices increased by around 35 per cent in the first six months of the year. The company has not disclosed exact price performance since then, but has said prices have plateaued in recent months.

De Beers sells the bulk of its gems on what are essentially long-term contracts, meaning it tends to feel market volatility less.

For De Beers, having Anglo American as a major shareholder in the current global financial climate would be preferable, one source close to the group said.

“While one will miss the Oppenheimer involvement, there is a strengthening of shareholders. Anglo has been an amazing shareholder in the recession,” that source said.

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