The subject of power

David McKay | Fri, 21 Aug 2009 10:20

[miningmx.com] -- “BECAUSE I DIDN’T get the top job.” So said Mick Davis in 1994, explaining why he was quitting South African electricity utility Eskom, of which he was then finance director. He was a mere 29 years old.

The “top job” eventually came when he rebuffed the opportunity of a senior post in the newly formed BHP Billiton, a deal he was integral in broking. Davis’s plan was to persuade Swiss group Glencore to allow the coal assets contained in its failed Enex IPO – shortly after 9/11 – to fall to a struggling company in which Glencore had a 40% stake.

Davis said he’d list the business in London and grow it. Xstrata, then close to breaking bank covenants, was born.

Davis and the subject of power has been the subject of many apocryphal stories ever since Xstrata took to the world stage. Asked by a British newspaper ahead of the listing of Billiton in 1999 what, in life, was most important to him, Davis replied: “Power, wealth and happiness.”

The order was specific, a City analyst tells Miningmx, who then asked not to be quoted. “I’ll tell you all the fawning stuff on the record but not the negative stuff about him,” he says. “There’s absolutely no upside in that. You see, there really is no point in annoying ‘Big Mick’.”

The nickname “Big Mick” isn’t entirely owing to Davis’s six-foot two-inch frame. Davis is intimidating and formidable in every sense, characteristics supported in the plethora of quotes attributed to him. For example, the quote he does his best work after 11pm.

Says the Guardian.co.uk: “The love of acquisitions saw Davis regularly work 70 hours a week, despite being married with three children, as he enforced a culture that was ‘not comfortable with standing still’. He flies to Switzerland each week, unless he’s visiting one of Xstrata’s sites around the world. In quieter moments he’s said to enjoy opera, history books and cricket.”

In an interview with Miningmx, Brian Gilberston, now chairman of Pallinghurst Resources, says Davis’s intention was to be more than just an accountant, his profession by training.

“When I met Mick he’d already made his name at Eskom. We were looking for a chief financial officer for Gencor but he’d only come if he could break the typecast role of CFO,” says Gilbertson. “I might just add that wasn’t terribly appealing to the Gencor board. So I had to prod them.”

Davis joined Gencor in 1994 but was given the role of looking after Trans-Natal, renamed Ingwe Coal Corporation. He was eventually its chairman and, says Gilbertson, “built it successfully”.

But it was with the creation of Billiton from Gencor and its listing in London that Davis established himself internationally. “He was my right-hand man in all we did,” says Gilbertson. “A man of substantial intellect, great determination and willing to take calculated risks.”

Des Kilalea, an analyst at RBC Capital Markets, says: “He just joins the dots quicker than most people.”

However, the question now is whether Davis has overextended his hand by bidding for a merger with Anglo American without, it would seem, offering a premium to Anglo shareholders.

In an interview, Davis says he couldn’t comment on future options but expressed his frustration because Anglo wasn’t even prepared to engage in talks. “We’re open to any range of options. I don’t believe Anglo is ignoring us. I think they’re heavily engaged. But we want them to talk to us about the synergies we’ve identified [between the two companies].”

Davis doesn’t believe Anglo would be shoe-horned into a deal once it had set down a road of talks with Xstrata. “These are grown up people. There have been many times I’ve been involved in deals and then pulled out,” he says.

However, an analyst says Davis – a veteran of mergers and acquisitions – has made some serious miscalculations.

“The first is that Anglo American shareholders in South Africa would accept a nil premium offer,” the analyst says. “There’s no crossover between the companies, so Anglo shareholders only wear the Anglo hat.”

The second and third miscalculations relate to the appointment of a chairman at Anglo. Davis would have been surprised at how quickly Anglo installed a new chairman after Mark Moody-Stuart announced his intention to leave the post last year and that the chairman was one of the group’s own choosing.

SA’s Government was pressing for its own black chairman. “Anglo showed some spine and appointed someone the City (London) wanted,” the analyst says.

The market expects Davis’s pursuit of Anglo to be a drawn-out affair. But it won’t be one he follows regardless, says Marc Gonsalves.

Now retired from Xstrata, Gonsalves was part of Davis’s inner circle, having been handpicked to head Billiton’s IR when the company moved to London. He followed Davis to Xstrata, where he was involved in its extraordinary evolution between 2000 and 2008. “Mick is an incredibly rational decision-maker,” says Gonsalves. “He won’t pursue this to the nth degree.”

Gonsalves also believes the market completely misreads Davis. “I’ve met many an executive and I’d say Davis is the one I could trust the most. Is he difficult? Of course. I’ve never pretended Mick is an easy person. But the big secret with Mick is that you get what you see. He’s not the most user-friendly type of guy but you always know where you stand. And there’s a kind of virtue in that – an honesty,” Gonsalves says.

Quotable quotes about Mick Davis

“There are four people who claim they brought Billiton to London: Gilbertson, myself, Adrian Coates (head of metals and mining at HSBC) and Davis. The answer is: it was Davis. He saw the opportunity and managed to persuade Gilbertson it would create a platform to build a new company to rival Rio.” – TimesOnline.co.uk

“He’s described his management style as giving staff the space to do their job well. ‘I tell them when they haven’t’” –Guardian.co.uk

“The Achilles heel of all executives is they eventually start believing the myth that’s created about the reasons for their success – that they’re omniscient and we never are.” – Telegraph.co.uk

“Davis doesn’t have much private time but he’s involved in a number of Jewish charities and is also a self-confessed cricket nut. He was SA’s youngest qualified umpire at 15.” – TimesOnline.co.uk

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