What's going on?
On Thursday, an Indian billionaire announced that he was buying a big chunk of Anglo American, a global mining company based in London. The purchase pushed up Anglo’s shares by a whopping 8%!
What does this mean?
Anil Agarwal, a billionaire who has built up his own mining empire called Vedanta, will be acquiring about 13% of Anglo, making him its second-largest shareholder. The purchase was made in a personal capacity, so it doesn’t officially mean that Vedanta is buying a stake in the company – but by owning a big stake in Anglo, Agarwal’s bought himself a front row seat (i.e. on the board) to developments inside of a company that he might want to combine with his own some day (see below).
Why should I care?
The bigger picture: Mining companies have seen their businesses steadily recover after a rocky few years.
Business is on the up for mining companies like Anglo. After a dismal slump in the prices of commodities like iron ore and zinc in 2015 and early 2016, the market has sharply rebounded in their favor, largely thanks to stronger demand from China. Miners have seen their stock prices nearly triple in value since the slump, and some investors are taking today’s news as another sign of rebounding confidence in the sector.
For the stock: Agarwal might be trying to engineer a takeover of Anglo American.
This isn’t the first tango that Agarwal’s had with Anglo… Back in 2016, he offered to merge one of his mining companies with Anglo, but his offer was rebuffed by Anglo executives who argued that the deal didn’t make financial sense. This time, he has publicly insisted that he’s not trying to launch a takeover of the company – but investors are naturally thinking that this could simply be the first step in a bigger plan to join up Anglo with his other mining interests (thus pushing up Anglo’s stock price, since they suspect it might be bought out).