The anticipated takeover of Ashton and its 40% stake in the Argyle diamond mines heated up in September as De Beers and Rio Tinto put down bids and Ashton rejected the former’s $522 million offer.
The rapidly developing takeover saga has the two mining giants in a face-off as Rio Tinto tries to secure its stake in the Argyle diamonds mine, of which it currently owns 60%. De Beers put on the table an offer of $1.62 per share for the remaining 40% of Ashton. The offer, countered by a higher bid of $1.90 per share—about $612 million—by Rio Tinto, was formally rejected as insufficient. The company urged shareholders to take no action on De Beers’ offer, advising them to wait for a higher offer from De Beers in light of Rio Tinto’s counter.
Analysts predict that De Beers will, indeed, up the ante.
According to Ashton, a report values the diamond producer at as much as $870 million, or $2.70 per share. Just like the diamond industry at large, De Beers seems poised to take its low bid and haggle upward.
Ashton is touting its well established reputation as a miner of affordable diamonds as reason for demanding a higher price. The global market for both Ashton’s lower priced diamonds and its signature pink diamonds are both very strong right now.
Along with its higher offer for the 40% of Ashton that it does not own, Rio Tinto has also claimed a legal technicality to try to prevent De Beers from taking over Argyle. A clause in the agreement between Rio Tinto and Ashton allows that diamonds mined at Argyle are to be channeled through Argyle’s independent sales organization. Ashton, however, insists that existing marketing arrangements can be cancelled with 12 months notice and De Beers’ offer is contingent upon the ability to terminate that agreement.
Until 1996, De Beers sold a majority of Argyle stones, but lost control of the channel in 1996. As questions arise surrounding the future of De Beers’ control of sales of Russian ALROSA diamonds, a takeover of Argyle would provide the world’s largest diamond miner more geographic expansion, allowing it also keep a hand in the Russian diamond industry as ALROSA has formed a joint venture with Ashton to explore for diamonds in Russia’s Rarelia state.
“De Beers has recognized the importance of Ashton to is marketing strategy, but has made a bid that does not reflect the true value of Ashton,” Ashton’s Chief Executive Doug Bailey said to the Australian Stock Exchange.
Ashton predicts that net profits will double in 2000. It is already the world’s largest diamond mine, producing 29.7 million carats last year. It is also one of the few that does not sell diamonds through De Beers’ global diamond trading channels. The Australian Competition and Consumer Commission will not take sides in the takeover bids.