This essay is a final exam, the professor has specified it shouldn’t take over 5-6 hours to complete. These are the Professor’s Instructions and guidelines: Background:In June 2021, Anglo American plc, one of the worlds largest mining companies, announced a demerger of its thermal coal operations in South Africa. In the companys press release, the CEO said this move was a responsible transition from thermal coal. As you know, a merger is when one company buys out the shareholders of another company and takes over its assets and liabilities. A demerger is when a subset of Company As assets and liabilities are transferred to a newly created Company B, and the shares of Company B are distributed proportionally to the shareholders of Company A. Anglo American transferred all the assets and liabilities related to its South African thermal coal operations, to a new company called Thungela Resources Limited. The shares of Thungela were given to the shareholders of Anglo American, who received one share in Thungela for every 10 Anglo American shares they owned. Anglo American held onto all its other mining operations, including its metallurgical coal operations. Thermal coal is primarily burned in electrical power plants to produce steam which is then converted into electricity. Metallurgical coal is primarily used to heat blast furnaces in the steelmaking industry. Scenario:You work for an green investment firm with significant holdings in Anglo American. Because your firm tries to invest in environmentally friendly companies, senior management is excited about Anglo Americans move away from thermal coal. At an upcoming board meeting, the directors will be discussing the implications of Anglo Americans demerger. You have been asked to provide a briefing note to help the directors prepare properly for the meeting. While the board is interested in knowing what the financial impact of the demerger will be on Anglo American, they also want to assess the quality of Anglo Americans financial disclosures. You have therefore been asked to base your note entirely on the most recent annual report of Anglo American, dating from six months before the demerger. Requirements:You have been instructed to address the following points in your briefing note. (The column of percentages indicates the weight of each section for grading purposes.) 1. Impact on Balance SheetDiscuss what Anglo Americans 2020 balance sheet would have looked like without the South African thermal coal operations. If you can quantify the impact, do so, and assume that any difference between the assets and liabilities to be removed in the demerger is applied to retained earnings. Discuss whether the loss of these assets and liabilities is material, and whether the financial position of the company is better or worse without them. 25% 2. Impact on Income StatementDiscuss what Anglo Americans 2020 income statement would have looked like without the South African thermal coal operations. If you can quantify the impact, do so. Discuss whether the loss of these revenues and expenses is material, and whether the financial performance of the company is better or worse without them. 25% 3. Quality of DisclosuresDiscuss the appropriateness and usefulness of Anglo Americans disclosures regarding its thermal coal operations. Specify what information is missing, if any, that would have made more accurate answers possible for points 1 and 2 above. 20% 4. Environmental GoalsDiscuss, in general terms, the overall impact of this demerger on Anglo Americans environmental goal of making a responsible transition from thermal coal. 10% 5. Overall EvaluationEvaluate the demerger decision overall, taking into account the above financial and environmental impacts. How does Anglo American benefit from this demerger? Was this a good decision? Justify your answer.20% The essay must be broken down and structured with these 5 areas being addressed. Use subheading to indicate them in your paper. GuidanceNo introduction is required for this essay. Just address the points indicated above.A condensed copy of the 2020 Anglo American annual report is available for download below. Large sections of the original report have been deleted to make your task manageable. The copy you have includes:The overview of the company (pages 1-3)The MD&A discussion of thermal coal (pages 86-87)The complete financial statements and notes (pages 149-231)Summary data, performance indicators, a glossary of terms, and alternative performance measures, in case you find them useful (pages 235 onwards) The easiest way to find Anglo Americans specific disclosures about thermal coal is to search the report for the word thermal. No further research about Anglo American or this particular demerger is needed, nor would it be helpful because the company has not yet released any post-demerger financial results. You are free, of course, to use the internet to learn more about demergers or any other topic if you feel you need to.
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