Corporate Finance Test
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School of Management Studies
Finance Advanced Topics
[BUS4083W]
Corporate Finance Test
23 September 2010
Time Allocation: 120 minutes
Total Mark Allocation: 90 marks
Case Study: Anglo American
On the 20th of February 2009, Anglo American announced that it would cut 11% of its work force and suspend its share buyback and dividend in the face of a poor economic outlook marked by "unprecedented" uncertainty. The miner said it was reducing its headcount by 19,000 workers, or 11% of its work force of 170,000. The share price fell 16.9% on the back of the announcement to close at $19.88. "The results are below what the market expected and the most telling thing is that they decided to suspend the dividend with no indication as to when it will be reinstated," said Sam Catalano, an analyst at Macquarie in London.
Anglo also outlined cuts in capital spending and production. Anglo American Chief Executive Cynthia Carroll said the company was taking the steps to preserve cash so it could emerge from the downturn in a position to resume steady growth in 2011. Chief financial officer Rene Medori said the dividend move and actions already taken to cut costs would mean that the firm would not have to ask shareholders for cash. "With the actions that we have taken in terms of cash flow preservation and the level of debt that we have, we don't believe that we need to contemplate a rights issue," he told analysts in a conference call.
Anglo's confidence about its funding situation was in contrast with rivals Xstrata and Rio Tinto, which are more highly geared than Anglo and had recently unveiled plans for a rights issue ($5.9 billion) and assets sales ($19.5 billion), respectively.
A few short weeks later, on April 16th, Anglo was forced to follow suit in a bid to “strengthen the balance sheet”. The company planned to raise $2.9 billion by means of asset sales and to raise a further $3.5 billion by means of either a bond or rights
School of Management Studies
Finance Advanced Topics
[BUS4083W]
Corporate Finance Test
23 September 2010
Time Allocation: 120 minutes
Total Mark Allocation: 90 marks
Case Study: Anglo American
On the 20th of February 2009, Anglo American announced that it would cut 11% of its work force and suspend its share buyback and dividend in the face of a poor economic outlook marked by "unprecedented" uncertainty. The miner said it was reducing its headcount by 19,000 workers, or 11% of its work force of 170,000. The share price fell 16.9% on the back of the announcement to close at $19.88. "The results are below what the market expected and the most telling thing is that they decided to suspend the dividend with no indication as to when it will be reinstated," said Sam Catalano, an analyst at Macquarie in London.
Anglo also outlined cuts in capital spending and production. Anglo American Chief Executive Cynthia Carroll said the company was taking the steps to preserve cash so it could emerge from the downturn in a position to resume steady growth in 2011. Chief financial officer Rene Medori said the dividend move and actions already taken to cut costs would mean that the firm would not have to ask shareholders for cash. "With the actions that we have taken in terms of cash flow preservation and the level of debt that we have, we don't believe that we need to contemplate a rights issue," he told analysts in a conference call.
Anglo's confidence about its funding situation was in contrast with rivals Xstrata and Rio Tinto, which are more highly geared than Anglo and had recently unveiled plans for a rights issue ($5.9 billion) and assets sales ($19.5 billion), respectively.
A few short weeks later, on April 16th, Anglo was forced to follow suit in a bid to “strengthen the balance sheet”. The company planned to raise $2.9 billion by means of asset sales and to raise a further $3.5 billion by means of either a bond or rights