JOHANNESBURG/LONDON Nov 22 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.
Which is exactly why the family's exit from the diamond
industry is all the more surprising. Africa's second-richest
family, after Nigerian food and cement tycoon Aliko Dangote,
sold their 40 percent stake in De Beers to Anglo
American this month for $5.1 billion.
The decision means the dynasty involved in South Africa's
diamond industry for a century, is finally getting out of the
"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.
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 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 two percent in Anglo American as well as
other investments such as a private equity business investing in
mid-sized South African companies.
WEALTH UNDER PRESSURE
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
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 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
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.
The family had to pump millions into De Beers, which was
forced to tap shareholders as diamond prices crashed. "They had
to put $400 million in cash into De Beers, which they didn't
have. And they had to borrow that money against their stake in
Anglo American," said one source familiar with the
The family was in a bind. The stake in De Beers lost value
and the family holdings outside De Beers were tied up largely in
private equity, where exiting with a profit was years
This sparked some family members, led by Slack -- who has
equal voting rights in the family -- to question
the Oppenheimers' continued involvement in De
"She would have been observing this (financial crisis) and
seeing their wealth really decimated. She was very uncomfortable
with where everything was going," said the source.
Peter Major, mining analyst at Cadiz Corporate Solutions in
Cape Town, said he believes Slack had considerable sway over the
decision to exit De Beers.
"Mary's view must have been the deciding factor in selling
De Beers to Anglos. Without a doubt. It would then have been
quite easy for Nicky to make the decision once he saw how Mary
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
De Beers told investors in July that rough diamond
prices increased by around 35 percent 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
De Beers sells the bulk of its gems on what are essentially
long-term contracts, meaning it tends to feel market volatility
But other gem producers have seen steeper drops - small
cap miner Firestone Diamonds said in mid-September that prices
had fallen 15-20 percent from the start of August as demand
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
De Beers has been battling a pile of debt for much of the
past decade. Net interest bearing debt was $3.2 billion at
the end of 2009 and $1.76 billion at the end of 2010 compared to
2000 when it had a net cash position of $1.35 billion.
WHO TAKES OVER?
One of the most intriguing factors behind the decision
to sell is the issue of succession planning -- tough for any
family business and even more so for the
Oppenheimer's multi-billion pound
Nicky Oppenheimer's heir-elect is his 42-year-old only
son Jonathan, educated at Christ Church, Oxford -- like his
father and grandfather -- and a 20-year veteran of several De
"Jonathan will certainly lead this process,"
Oppenheimer senior said. "I am after all 66, while I am active
and not retired, he is the man that is going to do the
But Nicky's choice, industry sources say, has not gone
unchallenged, particularly after Anglo American turned Jonathan
down for a board position after his father's departure and
closed what is usually the route to the De Beers
Anglo has an effective veto over the chairman's
Jonathan, his critics say, is less well-liked than
his father, while others question his ability to lead the firm.
One diamond industry source described Nicky Oppenheimer as
"totally blind" to his son's shortcomings and said others in the
family were unlikely to let him take the reins.
Nicky Oppenheimer declined to give details of the
family discussions but said the sale was a decision taken
unanimously and the family would continue to manage its wealth
"No doubt everybody is around speculating about what went
on or didn't go on. We as a family act together and Mary is
extremely supportive of the process of finding new business to
do," Oppenheimer said in an interview.
"None of us are the sort of people who think you should
bury your talents in the ground."
Cadiz's Major said Jonathan is unlikely to feel as attached
to the diamond industry as his forebears.
"Why should he have the same passion and vision and desire
that they did? Let alone the connections and gravitas. Are Steve
Job's and Bill Gates' kids dying to take over the reins of Apple
and Microsoft? Hell no."
But the issue will be a key topic for the family to
resolve over the coming months, as it waits for the
Anglo acquisition to complete and the cash to land in family
"Clearly we have a bias toward Africa, we are based in
South Africa so we will be looking for opportunities here. We
are looking for opportunities in Botswana where we have
good connections and then elsewhere in Africa," Oppenheimer
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 percent per
annum. It makes good economic sense," he said.