Page 11 - AMANGO 2017 CASE STUDY 2

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Market value (share price US$20 * 200m shares) US$4,000m
Countries of operations India (80%), South Africa (18%), Zambia (2%)

AMANGO Group PLC
Value of non-core business unbundled US$2,594
Value of SA core business absorbed into Vedanta US$225m growing at 12% on account of its existing free cash flows and
Resources the revenue synergies to be derived from further diamond deals in India.

Combined company (Vedanta + AMANGO Group PLC)
VR estimates the combined cost of capital to be 15% and that it could achieve synergistic benefits
following the acquisition of AMANGO, if undertakes a limited business re-organisation. It is estimated that
about US$223m will be spent immediately to undertake the limited reorganisation in order to remove the
following duplicated activities and secure pre-tax cost synergies over a 10 year period:

Closure of AMANGO corporate head-quarters and Shared Services Center (SSC) in London -and consolidation US$150m
into VR’s corporate head-quarters
Tax saving from charging high transfer prices for SA diamonds processed in India US$250m
Marketing and procurement optimisation US$45m
Redundancies mainly in AMANGO South Africa US$90m
Reinforced culture and benefits of knowledge-sharing US$25m

Corporate Reconstruction and Re-orgnisation

The general upward trend in commodity prices has seen the board dithering and seeking to review its
2016 strategic decision to radically restructure its portfolio, dispose non-core assets, and streamline the
group from 8 to 3 business segments by 2019. The board felt the strategic disposal in Brazil together with
other minor disposals had already gone a long way to achieve an inter-related objective set at the time,

that of deleveraging the balance sheet by targeting a debt reduction to US$10 billion by the end of 2017.

Although the recently published annual report shows this debt target was not reached, the resurgence in
commodity prices had significantly altered the group’s fortunes. It is the Board’s considered view that the
resulting significant bounce back of its share price and market capitalisation - obviously with the massive
debt reduction achieved -should be enough to restore its credit rating to investment grade; and if this was
the case, then the underlying strategic rationale to proceed with further disposals was no longer sound;
and hence there was no need to proceed with the radical reconstruction and re-organisation programme.

The next board meeting will therefore be looking to review AMANGO’s credit status and potential for its
restoration to investment grade! The next round of ratings reviews by the international agencies is only in
6 months, but there is a strong need to reach this decision sooner as major disposal talks were already at
an advanced stage; and it would be too late, or even more costly to reverse any talks by then.

The CharterQuest Institute has adapted the following model for use:

The CFO Case Study Competition Pack (Extended scenario)
www.charterquest.co.za | Email: thecfo@charterquest.co.za