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32. Acquisitions

Acquisition of subsidiaries

On 5 August 2008 the Group acquired a 63.3% shareholding in Anglo Ferrous Brazil SA, which holds a 51% interest in the Minas-Rio iron ore project (Minas-Rio) and a 70% interest in the Amapá iron ore system (Amapá) at a price of R$28.147 ($18.056) per share. At that time the Group committed to extend the offer to the minority shareholders of Anglo Ferrous Brazil SA. This offer was formally made on 31 October 2008 and as a result, the Group's shareholding in Anglo Ferrous Brazil SA at 31 December 2008 was 98.9%. Total cash paid to acquire a controlling interest was $3.5 billion. A further $2.0 billion was paid (including cash settlement of a related derivative instrument ($0.7 billion)) to subsequently acquire minority interests.

This transaction followed on from the prior year acquisition of a 49% interest in each of Minas-Rio and LLX Minas-Rio, which owns the port of Açu (presented as a comparative in the Acquisition of material joint ventures section).

As a result of these transactions the Group's effective shareholding in each of the operating entities at 31 December 2008 was 99.4% in Minas-Rio, 49% in LLX Minas-Rio and 69.2% in Amapá.

In the year ended 31 December 2008, the Group purchased 7,941,964 shares (2007: 4,435,086 shares) in Anglo Platinum Limited for total consideration of $1,108 million (2007: $671 million). The cash paid in the year ended 31 December 2008 was $1,113 million (2007: $658 million). In the year ended 31 December 2007, the Group also acquired 3,353,108 shares in Anglo Platinum Limited through a dividend reinvestment plan. The Group's shareholding in Anglo Platinum Limited increased from 76.5% at 31 December 2007 to 79.6% at 31 December 2008.

The carrying value and fair value of the net assets at the date of acquisition of a controlling interest and related net cash outflows are shown below. The fair values presented are provisional, and will be finalised in 2009 when the final fair values arising from the fair value assessments are confirmed.

  2008(1) 2007
 
  Anglo Ferrous Brazil SA(2) Other(3)    
US$ million Carrying
value
Provisional
fair value
Carrying
value
Fair
value
Total
provisional
fair value
Total fair
value
Net assets acquired
Tangible Assets 930 930 56 67 997 314
Other non-current assets 57 96 1 13 109 12
Current assets 319 388 69 69 457 65
Current liabilities (278) (278) (35) (36) (314) (54)
Non-current liabilities (418) (534) (7) (13) (547) (66)
Minority interests (235) (230) (230) (80)
  375 372 84 100 472 191
Add: Value attributable to reserves and resources acquired, net of deferred tax(4)   1,590   59 1,649 4
Less: Investments in associates previously recorded     (9)
Less: Fair value of assets contributed     (59)
Fair value of net assets acquired   1,962   159 2,121 127
Partial funding of partner cash calls     (12)
Goodwill arising on acquisitions   1,556   54 1,610 51
Negative goodwill arising on acquisitions     (2)
Total cost of acquisitions   3,518   213 3,731 164
Satisfied by
Net cash acquired   243   12 255 11
Cash paid in prior year     30
Net cash paid(5)(6)   3,275   201 3,476 123
(1)
Had all these acquisitions of subsidiaries taken place at 1 January 2008, the Group's revenue would have been $26,367 million and the Group's operating profit before special items and remeasurements would have been $7,929 million for the year ended 31 December 2008.
(2)
Since the date of acquisition, Anglo Ferrous Brazil SA has contributed revenue of nil and operating loss before special items and remeasurements of $70 million to the Group.
(3)
In total since the date of acquisition, these Other acquisitions have contributed revenue of $179 million and operating profit before special items and remeasurements of $16 million to the Group.
(4)
Represents the Group's share of value (implicit in the transaction) of reserves and resources, capitalised within tangible assets.
(5)
Includes net cash paid by discontinued operations of nil (2007: $9 million).
(6)
$2,411 million (2007: $658 million) has been paid to acquire minority interests in existing subsidiaries. In 2008 this related primarily to Anglo Ferrous Brazil SA and Anglo Platinum Limited (2007: Anglo Platinum Limited). These payments are not reflected in the above net cash paid amount. This resulted in total net cash paid for the acquisition of subsidiaries in the year of $5,887 million.

Acquisition of material joint ventures

The Group made one material acquisition of a joint venture in the year ended 31 December 2008 (2007: one).

On 29 February 2008 Anglo Coal Australia completed the acquisition of a 70% interest in the Foxleigh joint venture (Foxleigh) in Queensland, Australia. The total cost of acquisition was $606 million. The Group has proportionately consolidated 70% of Foxleigh from 29 February 2008.

The carrying value and provisional fair value of the net assets at the date of acquisition and related net cash outflow for material joint venture acquisitions are shown below:

  2008 2007
 
 
Foxleigh
Minas-Rio
49% interest(1)
Minas-Rio
49% interest
US$ million Carrying
value
Provisional
Fair value
Fair value Fair value
Net assets acquired
Tangible assets
Value attributable to reserves and resources acquired 684 151 1,770
Other tangible assets 108 108 86
Other non-current assets 16
Current assets 41 41 52
Current liabilities (37) (37) (84)
Non-current liabilities (47) (190) 93 (632)
Fair value of net assets acquired and total cost of acquisitions 65 606 244 1,208
Satisfied by
Net cash acquired   1 48
Deferred consideration   242 47
Costs accrued   1
Net cash paid(2)   605 2 1,112
(1)
During the year further consideration of $284 million (which is contingent on certain criteria being met) was recognised (reduced from the $600 million recognised in the first half of 2008, as a result of a change in the assumptions with regards to payment and purchase of an additional interest in Minas-Rio) together with an adjustment to the net deferred tax liability recognised to reflect the future tax benefit from cash payments made on acquisition. These adjustments resulted in amendments to the ‘Value attributable to reserves and resources acquired' and deferred tax in the acquisition balance sheet.
(2)
In addition, during the year there was further net cash paid of $2 million (2007: $2 million) for other joint venture acquisitions. This resulted in total net cash paid for investments in joint ventures of $609 million (2007: $1,114 million).

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