As Mondi prepares to be listed for the first time on the London Stock Exchange, OPI+ speaks to Anglo American and Mondi CEO David Hathorn on what this means for the paper and packaging business, and gauges investor response to the news so far
Valued at £4.5 billion ($8 billion), Mondi is making preparations to be floated on the London Stock Exchange (LSE) in 2006/2007 as the exchange’s biggest paper and packaging business.
The decision by Anglo American, a leader in a mining and natural resources, to list Mondi is part of an effort to concentrate its core businesses as outlined in the company’s strategic review last October. Mondi, which has been tagged by Anglo for its "growth potential", is expected to boost the umbrella company’s higher value mining portfolio. The decision has been praised by analysts, which immediately pushed Anglo shares up by 1 per cent.
"The move will allow our shareholders the best-priced and most efficient paper and packaging company," Kate Aindow, a spokesperson for Anglo American, told OPI+.
Mondi CEO David Hathorn did not hide his excitement when he spoke to OPI+. He said: "The decision will benefit Mondi. We are a growth-orientated business and it is a privilege being part of Anglo American. Going into the public market is the best way to export these growth opportunities…And because we have been part of a publicly-listed PLC for some time, we are used to disclosing information, so the move will not be a burden for us."
Anglo and Mondi expect the float, of which the preferred option is an initial public offering (IPO) of 20-25 per cent, to be a tremendous success. When OPI+ asked Hathorn if he thought the offering would be popular, he responded: "I would have thought so. We have done well related to the industry, growing at over 20 per cent per annum at compound growth rate." Aindow added: "The reaction to the news so far has been very positive, which we think is a good indication of how well the shares will sell."
The news has inevitably sparked speculation that Mondi is being geared up for sale, although on this Anglo offered no comment. Aindow did however reveal that Anglo American had been approached by parties interested in buying the paper and packaging business.
And there could well be further public offerings, she revealed to OPI+. "We are still in the discussion phases. A lot will depend on the shareholder response to the initial offering. There may be just the [one] IPO or there may be more, it depends on how it goes."
Mondi is in good shape at present, despite difficult trading conditions in Europe, which analysts say is testament to the business’s efficient growth model, which buys and grows assets in eastern Europe, enabling it to be well placed for sale in western Europe.
Although Anglo reported a 13 per cent decline in operating profits in 2005 for its Mondi business, it still posted a modest $495 million operating profit (8 per cent of Anglo American’s total). The company claimed difficult trading conditions were underpinned by $223 million in cost savings and profit improvement initiatives.
At the end of last year, the market showed signs of picking up and Hathorn expects price strength to return this year. Anglo American’s annual report also revealed that the company is considering a one million tonne softwood pulp expansion at Syktyvkar in north-west Russia at a capital cost of around $1.5 billion to meet growing worldwide pulp demand, driven mainly by China.
In 2005, Anglo American reported record earnings up 39 per cent year on year to $3.7 billion, with record production levels in some of its businesses such as base metals, ferrous metals and coal. And although cost pressures have been a challenge across many sectors in the last year, this has been offset by cost efficiencies and cash being at record levels.