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MultiChoice’s French connection

The Finance Ghost
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MultiChoice’s French connection

There’s been some buzz around MultiChoice recently, as French investor Groupe Canal+ has built its stake up to over 20%. Ghost Grad Sinawo Bikitsha wonders whether there’s something bigger on the horizon.

There is no word on this planet that irritates South Africans like the word “MultiChoice” (Ghostly editor’s note: I would wager that Eskom takes first place). With the company facing a tough consumer climate and plenty of new competition from streaming players, why is a massive French broadcasting empire so interested in cute and vulnerable MultiChoice? Hmm.

Slow and steady

Last week, MultiChoice Group announced that a French broadcaster named Groupe Canal+ increased its shareholding in the JSE-listed South African broadcaster to 20.1%. Canal+ has been building up the stake since 2020, when it moved through the 5% threshold to hold 6.5% in MultiChoice.

Local regulations require an announcement to be made whenever a shareholder moves through a 5% shareholding level. This helps us keep track of potential corporate actions.

It’s usually cheaper for a company to build up a stake slowly, as the price paid for the initial shares is the market price. When a buyout offer is made, a control premium needs to be offered to entice shareholders to accept the offer. This premium is usually between 20% and 40% over the traded share price. If you can be patient, it’s better to go slowly in the beginning and mop up a decent stake before potentially making the big offer.

Who is Canal+?

Canal+ is a French broadcasting and streaming company that operates in Europe, Asia and Africa. The French broadcaster has around 24 million subscribers worldwide.

Canal+ is owned by Vivendi, a French company with artistic diversity in television and cinema, publishing, videogaming and live entertainment, just to name a few. Vivendi is listed on Euronext Paris. In addition to Canal+, the parent company owns stakes in publishing company Editis, French multinational advertising company Havas, media press Prisma Media, distribution platform Dailymotion and video gaming company Gameloft.

In 2022, Vivendi has underperformed the EURO STOXX 50 index (though both have taken plenty of pain):

French kiss number 1: an offer in 2018

There was a rumoured deal in 2018 that most people aren’t aware of.

Before Canal+ bought MultiChoice’s shares, various news sources suggest that Vivendi tried to acquire MultiChoice Group in 2018. At that stage, MultiChoice was still part of Naspers and the deal was rejected. In 2019, MultiChoice was unbundled by Naspers and separately listed.

The French lover clearly didn’t handle the rejection well. With MultiChoice now separately listed and the shares trading on the open market, Canal+ put plan B into action and began building its stake in 2020, having doubled its shareholding in the MultiChoice Group by November 2021.

MultiChoice stated that the Group would keep an “open mind” in the relationship with Canal+. The commentary coming from Canal+ painted a story that it viewed the MultiChoice stake as a financial investment. It’s unusual (though certainly not unheard of) to see a company holding a financial investment in another company in the same industry. This would typically be a strategic investment, opening the door to something bigger.

Interestingly, Groupe Canal+ has been acquiring other rising African media houses. The parent company Vivendi is vigorously searching for new pay-television and magazine acquisitions. In fact, Vivendi has quite the reputation for taking part in aggressive takeovers.

In 2019, Groupe Canal+ acquired ROK studios, a Nigerian TV and film production house. This year, the French media house acquired Rwandan streaming service ZACU TV, enhancing the group’s position in East Africa. Canal+ maintains that the Group’s main target is to produce pleasing content for African subscribers. Evidently, Vivendi is steadfast in growing its presence in Africa’s TV and film industry, with the French empire criticised at times for being a bit bullish.

French kiss number 2?

Here’s the problem: section 64 of the Electronic Communications Act, 2005 says that foreigners cannot have an interest in a commercial broadcasting licensee of more than 20%. There’s clearly already a problem, though the word in the market is that MultiChoice’s MOI limits voting rights to 20% for foreigners regardless of how much they hold. This doesn’t deal with the “financial interest” point though, which is in black and white in the Government Gazette:

It’s not obvious how Groupe Canal+ could increase its stake from here. This means that either (1) it really is a financial investment, (2) Groupe Canal+ is looking to do a content deal with MultiChoice or (3) there’s a chance that the rest of Africa business gets carved out and sold to the French, which would make some sense from a language perspective. These options aren’t mutually exclusive.

For now, I’m an unhappy consumer. MultiChoice has increased DSTV subscription prices and reduced channels. Whilst I must commend MultiChoice for being able to secure Disney+ for DSTV Explora Ultra subscribers, I just don’t find the story very appetising. If this was breakfast in Paris, MultiChoice would be the overbeaten egg whites with an irreversible curdled texture rather than foamy soft deliciousness .

Yet, Canal+ is interested in MultiChoice. They clearly see something more interesting in the story than I do. If anything, the Phuthuma Nathi B-BBEE structure is where I would invest.

Ghost Bites Vol 46 (22)

The Finance Ghost
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0
Ghost Bites Vol 46 (22)

Corporate finance corner (M&A / capital raises)

  • In Tiger Brands’ results for the six months to March 2022, the company noted that the structured disposal of the Deciduous Fruits business had been terminated. In other words: there was no sale. The social impact of the closure of this business in Ashton would’ve been severe. Although a “significant number of parties have expressed an interest in further discussions on the possible acquisition of the business” (note the fluffy wording as there is nothing concrete on the table), a new deal can’t be done in time to put the preparations in place to process the next crop. After engaging with various stakeholders, Tiger Brands has agreed to extend operations for a further season, with the terms of that agreement “significantly mitigating the risk of operating losses” in this season. This preserves 250 permanent and 4,300 seasonal jobs. The announcement doesn’t give further details on the terms that were agreed, so I’m not sure who is taking the financial knock here. Although this story is by no means over, I’m glad that a solution has been found for the town for another season.
  • Tongaat Hulett announced that Artemis Investments has increased its stake in the company to over 10%, which was enough to send the share price over 32% higher before things “calmed down” to be up 20% by afternoon trade. When a company is very sick, any good news sends the market into a frenzy. In this case, people were clearly inspired by an important shareholder increasing its stake.
  • South32 has agreed to sell a package of four non-core base metals royalties to Anglo Pacific Group (listed in London) for a price of between $185 million and $200 million depending on whether certain conditions are met. The royalties will be paid for with $103 million in cash ($48 million immediately and $55 million over 18 months) and $82 million in Anglo Pacific shares. After this deal, South32 will hold a 16.9% interest in Anglo Pacific. Even after this sale, South32 owns a package of 36 royalties at different stages of maturity, weighted towards base metals. The royalties were carried as an intangible asset with nil value, so South32 will recognise a large gain on sale here.
  • City Lodge has confirmed that it has received the proceeds from the sale of the East African operations and has used them to repay debt. In addition to this good news, loan facilities have been refinanced at more favourable terms. The SENS ends off on a strong note to say the least:

“The Company…together with the improved operational performance…finds itself in a robust operational and financial position.”

City Lodge update 12 July 2022
  • Ascendis seems to be juggling many balls at the moment and most of them are usually on fire. The Skin business was disposed of in June 2022 and the sale of the Medical business has been terminated. The Pharma business is still earmarked for disposal to a joint venture between Pharma-Q and Imperial. In the event that shareholders don’t approve that deal, the company is negotiating a backup sale of the Pharma business to Austell Pharmaceuticals. The Category 1 circular was supposed to cover the Medical and Pharma sales, so it had to be amended to only make reference to the Pharma sale. The Takeover Regulation Panel (TRP) has given dispensations regarding the timing of the distribution of the circular, as the proposed strategy to fix the balance sheet has changed so many times in recent months. Shareholders can now expect to receive the circular before the end of August 2022.
  • Silverbridge Holdings is currently under offer from ROX Equity Partners at R2.00 per share. Three directors have given notice of their intention to accept the offer, including the CEO, deputy CEO and chairman. That sends a pretty strong message to shareholders. The offer circular will be published by 21 July.
  • Redefine is busy with a debt capital markets roadshow this week. Of course, the presentation to debt investors about the fund is just as relevant to equity investors. If you would like to work through the presentation, you’ll find it here.

Earnings updates

  • Tharisa has released a production report for the third quarter ended June 2022. PGM production was slightly down from the preceding quarter and chrome production was higher. The Vulcan Plant is delivering a steady improvement in chrome recoveries. The PGM basket price has dropped by 4.6% vs. the second quarter but chrome has headed in the right direction and with a vengeance, up 39.5%. Tharisa notes that the “growth strategy remains firmly on track” and highlights its positive net cash position of $48 million. The group also highlights that its 10MW of standby power means it has had negligible disruption from Eskom. PGM guidance for the full year has been maintained but chrome guidance has been decreased by 10% due to lower chrome feed grade and a slower ramp-up than expected at the Vulcan Plant. The management team joined us on Unlock the Stock at the end of June to give a presentation on the business and respond to questions. You can find the recording here.
  • Sebata Holdings has released a trading statement for the year ended March 2022. The headline loss per share has skyrocketed to between -440.83 cents and -446.53 cents vs. -28.46 cents in the prior year. Don’t let the 18.6% share price jump on the day fool you – there was one trade in the morning that drove that, with the large jump a result of the bid-offer spread that you could park a truck in.

Share buybacks and dividends

  • Lewis Group is perhaps the best example on the JSE of the power of share buybacks. Despite operating in a country and sector that hasn’t exactly been easy, shareholders have enjoyed a great run. Share buybacks have been a major driver of this growth, with Lewis repurchasing shares at a low valuation multiple. The company has already used up the 10% buyback authorisation from the last AGM and has requested another 10%. This needs to be approved at a special general meeting and a circular has been sent to shareholders that you’ll find at this link.
  • Accelerate shareholders have already been told about a cash dividend of 21.98051 cents for the year ended March 2022. There is a share reinvestment alternative based on a price of R0.70 per share, significantly lower than the current market price of R1.29. Like all companies that offer such an alternative, Accelerate is hoping to entice shareholders to reinvest the cash so that the company effectively hangs onto it.
  • Industrials REIT has announced the exchange rate applicable to the dividend, which will result in a dividend of 70.08172 cents per share. There is a scrip dividend alternative (shareholders can receive shares instead of cash) but the price for that alternative is R29.80 which is slightly higher than the current market price.
  • The numbers at Prosus and Naspers are just staggering. Last week, the companies repurchased shares worth $429 million and almost R1.75 billion respectively.

Notable shuffling of (expensive) chairs

  • I tend to ignore changes in non-executive directorships, as these are usually focused on governance rather than strategy and such changes are common on the JSE. The latest appointment at Afine Investments is different, with Gary Du Preez appointed to the board in a non-executive role. He has over 36 years of experience in developing service stations, with direct responsibility for over 90 service station developments. Mr Du Preez is a director of Terra Optimus, a company you’ll recognise from the shareholder register of Afine. Notably, Peter Todd has resigned as a non-executive director of the company. I’m sure he will pop up soon in a new listing!

Director dealings

  • The ex-CEO of KAP Industrial Holdings (now a non-executive director) has disposed of shares in the company worth nearly R1.6 million, just before the closed period started in July. It’s small relative to his total stake but isn’t a great signal.
  • An associate of the CEO of Sirius Real Estate has bought shares in the fund worth around £4k.
  • The CFO of Famous Brands isn’t messing around, taking on more leveraged positions in the stock. This time, the value is R439k. The stock is down over 20% this year, with the removal of mask mandates hopefully providing the catalyst for a recovery in this sector.

Unusual things

  • Anglo American has announced first production of copper concentrate from its Quellavaco Project in Peru. It’s taken four years since project approval to reach this point, which is impressive when you consider that this included a couple of years of the pandemic. The mine will increase Peru’s copper production by 10% and create 2,500 direct jobs. The mine is now in final testing before being given clearance for full commercial operations.
  • Harmony Gold’s financial year ended in June and the group has given us an update on production numbers and various other matters. Harmony has achieved the total production guidance of between 1,480,000 and 1,560,000 ounces. We have to wait for further announcements to get more financial information about the FY22 performance. Loss-of-life prevention remains at the top of the priority list, after 13 mineworkers sadly lost their lives in FY22. Related to safety, it’s interesting to note that the Bambanani mine near Welkom is being closed by Harmony due to increased seismic activity in the region, with the staff redeployed to other Harmony mines. The announcement also reminded the market that Harmony raised R1.5 billion in a sustainability-linked debt facility that will be used for renewable energy projects.

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Vuka, Buka

The Finance Ghost
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Vuka, Buka

Imbalie Beauty recently released its last integrated annual report under that name. There has been yet another name change for this listed company, along with a significant change of strategy under new owners. Ghost Grad Kreeti Panday books a nail appointment and unpacks this story for us.

Back in 2007, Placecol Holdings acquired the Dream Nails group and the entity was listed on the AltX, which is where companies list on the JSE in the hope of eventually growing into large groups with a vibrant shareholder register. Sadly, liquidity is virtually non-existent on the AltX and most companies never move from the AltX to the Main Board.

A 2007 listing marked the top of that bull market cycle, a golden period in South Africa when the Ghost was starting university and I wasn’t even in primary school. The top of a cycle is when you see the more unusual, risky listings come to market, as there is strong appetite from investors to take a chance and win a prize (or not, as is often the case).

Having survived the Global Financial Crisis, the name change to Imbalie Beauty only took place in 2012 after the group acquired the Perfect 10 group of beauty salon franchises. Our country had embarked on a “lost decade” by then and Imbalie doesn’t have a pretty story to tell, despite operating several skincare brands in addition to the beauty salons and skin care clinics.

There were problems long before Covid

Imbalie was reporting headline losses long before Covid came to our shores and replaced beauty masks with cloth masks. After a painful rights offer in 2018 to recapitalise the business, the JSE censured the business in 2019 for publishing information related to the underwriting of the rights offer that was misleading to shareholders.

In 2020, Imbalie Beauty suffered great losses due to the Covid-19 lockdown as beauty salons were forced to close for 87 days. The financial losses arguably paled in comparison to the tragedy of women being forced to endure their unibrows and cracking nails for 3 months.

The group’s loss worsened from R2.16 million in 2020 to R9.37 million for the year ended February 2021, a deterioration of around 332%!

Manicures, pedicures and (attempted) financial cures

If things were tough before the pandemic, you can imagine how quickly things fell over during the lockdowns. The group fought for survival, but it was just too hard.

The i-BLOOM name was launched to the market during lockdowns, with an increased push into training and education with the i-BLOOM Beauty & Wellness Academy. This is an international training platform directed at cultivating specialists in the beauty and wellness industry. To complement this, Imbalie created a Customer Solutions Division in August 2020, with the aim of building salon-quality products that customers could use within their own homes as well as the training of therapists to provide home-based solutions.

CEO Esna Colyn described this initiative as a way to give new opportunities to women who were looking for an additional source of income, especially due to the numerous retrenchments taking place during the pandemic and the intensified duties that women were forced to take on in the home, including taking on responsibility for the schooling of their children.

In my case, my mother wasn’t trying to help me with my calculus, yet she still couldn’t wait to get rid of me so she could use the WiFi again.

The goal of the division was to develop a community of 1,000 women over the subsequent three years, providing a “beautiful experience” for clients. Sadly, the experience was not beautiful for shareholders, as the pandemic was the (ugly) nail in the coffin for the business.

Along came a banker

In October 2020, it was announced that the group had procured a R6 million loan from ABSA to help ride out the Covid-19 losses. When a company burns through equity and needs to replace that capital with debt, there is often a permanent loss to shareholders.

This loan came with the condition that the subsidiary that receives the loan must operate in the private market in order to save costs. In other words, the JSE would be bidding farewell to this business. With Long4Life also gone (the owner of Sorbet), there’s nowhere to get your nails done on the local market.

The beauty business is no doubt enjoying a resurgence in trade at the moment, in line with what we are seeing in other service businesses. Listed shareholders won’t get to enjoy that, as the subsidiaries of Imbalie have now been sold to the privately-held i-BLOOM Group. This deal was effective on 31 January 2022.

Vuka, Buka

Vuka is the Zulu word for “wake up” and that’s hopefully what this listed shell will be doing. After the acquisition of a 61.26% stake in the listed company by new investor B&B Media (also with an effective date 31 January 2022), Imbalie Beauty changed its name (again!) to Buka Investments.

Little is known about B&B Media, a company primarily engaged in advertising in addition to holding “various fashion and retail assets” based on media reports. Some of those assets will be reversed into Imbalie Beauty as a “listed shell” which is a cheaper way to achieve a listing for your assets.

It didn’t cost B&B terribly much to take control of the listed vehicle. The price was 0.09 cents per share, so the total investment was R7.6 million. This triggered a mandatory offer to other shareholders, which was only accepted by holders of 1.5% of shares in issue. This took the stake to 62.76%.

Those who rode Imbalie all the way to the bottom are clearly hoping that the new strategy will pay off. Once you’ve lost practically everything, just holding onto the shares gives decent “option value” as there’s only upside from there. Either that, or shareholders were too busy getting their nails done to notice the offer.

We won’t know for sure whether operating in the private environment helps i-BLOOM achieve financial sustainability. The most we can do is judge this based on the growth (or lack thereof) of the underlying franchises.

As for Buka, we can only look forward to learning more about the fashion and retail assets that will be coming to market. Many shareholders are hoping for a more beautiful experience than before.

Ghost Bites Vol 46 (22)

The Finance Ghost
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Ghost Bites Vol 46 (22)

Corporate finance corner (M&A / capital raises)

  • Gold Fields really upset the market at the end of May when the company announced the major acquisition of Yamana Gold, an offshore business trading at a much higher multiple than Gold Fields. To help cheer shareholders up, the company has announced an update on its dividend and listing strategies, as well as rationale of the deal. The first bit of good news is that the revised dividend policy is to pay 30% to 45% of normalised earnings each year, with the 2023 payout ratio expected to be at the top end i.e. 45%. Another important update is that Gold Fields will list on the Toronto Stock Exchange as part of this deal, which will hopefully attract international investors. In terms of Yamana itself, Gold Fields sees this as a strategic fit that will bring high-quality, long-life assets into the group in attractive jurisdictions. There are still major shareholder approvals required (two-thirds of Yamana Gold shareholders and at least 75% of Gold Fields shareholders), so the deal is by no means a certainty. To help get it across the line, Gold Fields has released a detailed presentation that you can find at this link. As a Gold Fields shareholder, I’m hoping this chart from the update comes to fruition:
  • Capital & Regional Plc has completed the £21.65 million sale of the Walthamstow residential development to Long Harbour. This project is found at a community shopping centre in London. The proceeds will be used to reduce debt. This is a classic “precinct” strategy, with the residential development expected to drive stronger performance at the retail centre. The share price showed its appreciation with a 7.6% rally.
  • Super Group has raised R500 million in a debt issuance under its Domestic Medium-Term Note Programme on the JSE. It could’ve raised far more if it wanted to, as bids of over R1.7 billion were received for the tranches.
  • FirstRand is in the process of proposing a scheme of arrangement with a standby general offer to holders of the B preference shares in the bank. If you are the proud owner of such a preference share, I suggest you refer to this circular for more information.
  • Sebata Holdings is now trading under cautionary after noting that the company is in negotiations for a potential disposal of one or more businesses.

Earnings updates

  • None – come back tomorrow!

Share buybacks and dividends

Notable shuffling of (expensive) chairs

  • The expensive chairs stayed where they were today.

Director dealings

  • The ex-Naspers financial director (who still sits on the board) exercised share options and disposed of shares to the value of over R149 million. To put that number in perspective, if he invests it in fixed income instruments at just 7% per year, the interest would be R200k per week in round numbers. Aah well, back to work the rest of us go.
  • Capitalworks is a long-standing partner of listed food business RFG Holdings. After the private equity investment house bought R195k worth of shares at the end of June, it has topped up the position with a further purchase of nearly R154k. This is announced on the market because two of the RFG Holdings directors are from Capitalworks.
  • There’s yet another purchase of shares in Kaap Agri by one of the directors, this time to the value of nearly R72k.
  • The financial director of Dipula Income Fund has bought nearly R54k worth of Dipula B ordinary shares.
  • The management team of The Foschini Group has been granted chunky forfeitable share awards, which is a common long-term incentive mechanism. Buried deep in the announcement is a note that the company secretary sold a batch of shares previously granted, putting over R233k in the bank in the process.

Unusual things

  • Renergen is still using SENS to provide an unofficial online course to anyone who wishes they had studied engineering. The latest update is the introduction of “gas to plant” at the Virginia Gas Project, which sets the scene for final commissioning workstreams over the coming weeks. Commercial operation is anticipated once customer sites are ready to begin accepting product, which Renergen expects towards the end of July 2022.
  • If you would prefer to study geology online rather than engineering, Orion Minerals is an ongoing source of technical updates about the Prieska project. I usually skip to the quote from the CEO, which is the only bit I really understand. In this case, he continues to sound very happy. Orion is working on an early production strategy at Prieska and latest drilling results seem to be supportive of this.
  • Old Mutual’s shareholding in Quilter has now moved below the 5% mark, a symbolic step in the Old Mutual story after Quilter was separated from Old Mutual in 2018, rebranded and listed as a UK wealth investment business.
  • Pembury Lifestyle Group has renewed its cautionary announcement as the company is still trying to pull enough money together to just settle the bills from its auditors. Once that is sorted out, audits need to be done for the 2019 – 2021 financial years. A property in Northriding that was originally built as a school has now been converted to a commercial building, which should provide the cash flows needed to pay the auditors. The designated advisor and company secretary have also resigned, so things are just going SO well there.

Lonsa Everite acquires Swartland for R1.3 billion

The Finance Ghost
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Lonsa Everite acquires Swartland for R1.3 billion

Mauritian investment company Lonsa Group has acquired window and door manufacturer Swartland through its Lonsa Everite special purpose vehicle for R1.3 billion, cementing a platform to build a leading building materials group in Sub-Saharan Africa within the next five years.

Lonsa Everite Proprietary Limited (“Lonsa Everite”), together with Legacy Africa Capital Partners (“LACP”) and Swartland management, have acquired 100% of the issued shares in Swartland Investments and Swartland Insulation (“Swartland”), as well as the freehold properties from which Swartland operates and is adjacent to, from Swartland Group Proprietary Limited and a third-party seller.

The transaction value of circa R1.3 Billion was funded through a combination of Lonsa Group Limited, Lonsa Everite and LACP shareholder equity, a vendor deferred payment agreement and R660 million of debt financing provided by Nedbank Limited.

The acquisition, after receiving approval from all relevant competition authorities and reaching financial close, became effective on 1 July 2022 and includes all of Swartland’s existing operations and assets, as well as the recently established insulation manufacturing business.

Swartland is an industry leading manufacturer and supplier of wooden doors and windows, aluminum doors and windows, garage doors as well as XPS insulation and cornices, and operates in Southern Africa, the United Kingdom and the United States of America. You can see the product range at this link.

With well-known brands such as COL, Kenzo and Hydro, Swartland is a notable and complementary addition to Lonsa Everite’s existing Nutec and AAC brands, significantly widening the Lonsa Everite offering of building material supplies.

In addition, the acquisition rationale was further strengthened through strategic initiatives and synergies identified by Lonsa Everite. This includes expansion of both Lonsa Everite and Swartland’s footprint in the rest of Africa, optimisation of Swartland’s distribution capabilities by leveraging off Lonsa Everite’s established distribution network, providing a greater basket of goods to building supply retailers through complementary products from both Lonsa Everite and Swartland and expansion of Swartland’s route to market utilising e-commerce platforms such as Takealot and others to come.

Robin Vela, Chairman of Lonsa Everite, said:

”The acquisition of Swartland talks to our strategic objective of establishing the Lonsa Everite Group as the preeminent industrial building materials manufacturer and distributor on the African Continent. This will be achieved through a combination of astute acquisitions, leveraging and realising synergies between group entities and organic growth. Both Lonsa Everite and Swartland are highly cash generative, profitable businesses with long established brands (over 80 and 70 years respectively) presence in the South African building materials market. We have only just gotten started and there is more to come.”

Kgosi Monametsi, Managing Director of Legacy Africa Capital Partners, commented:

‘We are delighted to again have partnered with Lonsa Group Limited and Everite Management in this transaction. The investment into Swartland is not only a financially attractive one but also fulfills our Funds objectives from a transformation perspective as well as the contribution to society more broadly as Swartland is a significant employer and job creator.”

Jurgen Stragier, Chief Executive of Lonsa Everite, added:

“Following the acquisition of Everite in May last year by the consortium led by Lonsa Group Limited, the business has developed an ambitious growth strategy, starting with the acquisition of other leading building material businesses with respectable heritage and strong brands. Swartland is certainly among the top of this select grouping of companies, and Lonsa Everite is excited at the prospect of growing a bigger and better Group through this acquisition. It provides a strong starting point for what will be a leading building materials Group in Sub-Saharan Africa within the next 5 years, driven by great people delivering great products to the market.”

Lonsa Everite was advised by Birkett Stewart McHendrie (BSM), a South African corporate advisory firm with a boutique culture that specialises in M&A, restructurings and distressed advisory, transaction services and capital raising. The founding partners have worked together since 2012, completing sophisticated financial advisory services for clients ranging from family businesses, private equity funds and JSE-listed companies through to large multinationals. You can find out more about BSM at this link.

Learn more about Lonsa Everite:

Lonsa Everite was incorporated as a special purpose acquisition vehicle in 2020 when Lonsa Group Limited (“Lonsa Group”), LACP and Everite Management acquired the business and assets of Everite Proprietary Limited (“Everite”) from Group Five Limited. Lonsa Group is a Mauritius incorporated investment vehicle established in 2004 with interests in the energy, industrials, logistics and property sectors in Southern Africa. Everite was established in 1941 and is the leading industrial manufacturer of a range of niche building products for the South African building industry’s commercial, industrial and residential market sectors. Everite is known for its comprehensive range of Nutec Roofing and Cladding Solutions, which includes fibre cement roofing, cladding, ceilings and building columns amongst others. Everite is also the license holder for various leading alternative building systems and technologies.

Learn more about Swartland:

Swartland was established in 1951 and operates as a multifaceted building supplies manufacturer. Swartland is one of the largest manufacturers of quality windows and doors in the South African building industry. Their national distribution footprint comprises 7 depots and more than 42 031m² of warehouse space, situated in all major economic centers in South Africa. Swartland also own the Boskor Sawmill in Tsitsikamma which supplies FSC certified pine timber. This has allowed for synergies within the business as Swartland can now ensure a constant and quality supply of pine to their various product lines. It also allows them to secure the best cut of the timber which was not a guarantee. Swartland manages its own distribution network with a fleet of c. 50 trucks which can deliver to hardware retail chains around sub-Saharan Africa. Swartland also exports products to the UK and US markets.

Swartland’s product offering includes wooden doors and windows, aluminium doors and windows, garage doors and automation, XPS insulation and cornices and skirtings, finishes, par awnings and finished products.

Learn more about LACP:

LACP was founded in September 2018 and is a private equity fund management business. LACP is the manager of Legacy Africa Capital Partners Fund I and is part of Legacy Africa Fund Managers. LACP is a 100% black-owned and managed company comprising a team of deal principals with a long history of private equity investing. The firm seeks to provide capital to entrepreneurial, unlisted companies seeking expansion or buy-out capital to introduce black shareholding to drive growth.

Ghost Bites Vol 45 (22)

The Finance Ghost
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Ghost Bites Vol 45 (22)

Corporate finance corner (M&A / capital raises)

  • The big moment is here for PSG shareholders, with the restructuring circular now available to shareholders. It deals with the “unlocking of value” for the PSG Group i.e. the unbundling of almost all the assets. This means that 61.1% of PSG Konsult, 63.6% of Curro, 34.7% of Kaap Agri and 47% of CA&S will be unbundled to shareholders. Only a portion of Stadio is destined for PSG shareholders (25.1% of the company), with the PSG founding management holding on to some of their Stadio shares. PSG is proposing that the assets that aren’t unbundled should be sold to the PSG founders for R23 per share. BDO Corporate Finance has already given its opinion as Independent Expert that the terms are fair and reasonable to shareholders. The table below indicates the value being distributed to shareholders. If you want to see how complicated corporate restructurings can become, there’s a 254 page circular for you to sink your teeth into at this link.
Source: PSG website, 10 July 2022
  • Capital & Counties Properties (Capco) is in the process of proposing a deal with shareholders that would see Shaftesbury merger with Capco. A circular and prospectus have been sent out, as there are so many new shares being issued that this isn’t just a standard acquisition (hence the word “merger”). If you want to see the sheer number of documents required from a regulatory compliance perspective for a deal like this, check out this section on the Capco website. Please also note the earnings update from Capco further down in Ghost Bites today.
  • Back in November 2021, Vivo Energy announced that Dutch energy and commodity trading company Vitol would be making a cash offer for all the shares it didn’t already own in Vivo. After working through the various shareholder and regulatory approval processes, the offer has now met all conditions. As the effective date is prior to the interim dividend record date, Vivo Energy has declared a special dividend of $0.02 per share. The shares are expected to stop trading on the JSE on 25th July, with the dividend then paid and the listing terminated on 29th July.
  • Banks have been buying up their issued preference shares in the market, as this has become a less appealing source of capital since Basel rules changed (these are the rules governing the way banks measure their capital adequacy). At one point, banking preference shares were all the rage as a source of funding. FirstRand is the latest bank to make this move, with an offer to repurchase all the “B” variable rate preference shares. This is being structured as a scheme with a standby offer, with means that FirstRand’s ideal scenario is to repurchase all the shares (achieved through a scheme of arrangement), with second prize being a repurchase of shares from any shareholder willing to sell (the standby offer). The repurchase price is a 12.8% premium to the 30-day volume weighted average price.
  • In case you are keeping an eye on service station forecourts business Afine Investments, you’ll be interested to know that Petroland Group and Terra Optimus now own 6.22% and 5.55% respectively.

Earnings updates

  • Capital & Counties Properties (Capco) already earned a mention in Ghost Mail this morning for the release of regulatory documents related to the Shaftesbury merger. The company also gave the market an update on its business, headlined by a 5% increase in the value of the Covent Garden estate in the first half of the year. This was driven by a 4% improvement in the estimated rental value (ERV) and a decrease in the cap rate that the property is valued on, reflecting improved leasing activity and market conditions. Sales value is running ahead of 2019 levels and footfall is still recovering. The vacancy rate at 30 June is 2.5%. The loan to value ratio of Covent Garden is 20% and Capco has cash of £139 million and £300 million in undrawn loan facilities. Capco repaid £200 million in loans in the first half. Interim results for the six months to June will be released on 2 August.
  • PBT Group has released its integrated annual report for FY22. Although there is no change to the previously announced results, the report is a worthwhile read for PBT shareholders because the company does a great job of giving proper disclosures about the business. For example, PBT discloses the percentage of revenue earned from each industry, with financial services now contributing 74% of revenue (way up from 49% in FY19). For more great insights into this company, refer to the integrated annual report at this link.
  • Brait is firmly on the radar for investors, so it’s worth mentioning that the integrated annual report is now available at this link.
  • African Dawn Capital has released results for the year ended February 2022. Revenue increased by over 58% and the headline loss per share improved by 12% to -20.3 cents. This group has a colourful history to say the least, including a fight with SARS and failed transactions. Today, the group has a lending business and a platform that claims to increase due diligence efficiency.

Share buybacks and dividends

  • I don’t mention it every day as it would just become annoying, so this is your occasional reminder that British American Tobacco and Glencore are both busy with share buyback programmes and are releasing daily updates.

Notable shuffling of (expensive) chairs

  • There was no shuffling today!

Director dealings

  • Another day, another purchase of shares by a director of Kaap Agri. The latest purchase was to the value of R95k.

Unusual things

  • BHP is defending a group action claim in the United Kingdom related to the failure of the Samarco dam in Brazil in 2015. I’ve seen offshore media reports that this is a £5 billion claim, so the stakes are high. There is incredible footage of the dam collapsing, which you can find here on YouTube (be warned: many lost their lives and it’s not hard to see how from the video). The UK High Court previously ruled that proceedings in the UK were an abuse of process. The Appeal Court has overturned that ruling, which allows the group action to continue in the UK. This has nothing to do with the merits of the claim and is purely a procedural ruling. BHP is deciding whether to seek permission to appeal to the UK Supreme Court. BHP has already provided £1.5 billion in compensation to over 376,000 people and legal proceedings in Brazil are ongoing.
  • Imbalie Beauty has released the last integrated annual report that will carry that name, as the company has rebranded to Buka Investments. Covid caused incredible pain for the group’s beauty franchises, leading to a restructure of the group that included the beauty businesses being stripped out along with the debt raised during Covid. The remaining listed shell will focus on investments in the fashion industry.

Discretionary retailers on the JSE – Part 2

Chris Gilmour
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Discretionary retailers on the JSE – Part 2

A couple of weeks ago, Chris Gilmour took a detailed look at the non-discretionary retailers on the JSE. This includes the grocery stores and pharmacy chains. Last week, he began a journey into the discretionary retailers on the JSE, focusing on Woolworths in part 1. This week in part 2, Chris looks at Truworths in detail.

Truworths lags both The Foschini Group (TFG) and Mr Price in terms of vision, entrepreneurial flair and the ability to capitalise on market opportunities.

In part, this is probably due to complacency which has sunk into the organisation over many years. It still persists with an addiction to credit-fuelled growth in its main operations, whilst its competitors have long ago gone the predominantly cash route. And while both Mr Price and TFG have recently embarked upon meaningful acquisitions in order to grow their top lines, Truworths has put its excess cash into share buybacks.

Ex-growth under current management

Truworths remains a solid and operationally well-managed business, notwithstanding its ill-conceived foray into the UK retail market with the acquisition of Office six years ago. It remains well-run and offers shoppers a quality experience. However, it has gone ex-growth in recent years and that is unlikely to change under current management direction.

A five-year share price chart certainly tells a story:

Long-time CEO Michael Mark will be retiring this year after over thirty years at the helm of the business. Generally speaking, he has had a good record in running the company, but Truworths now finds itself, in my opinion, at a watershed. Its products, although high-quality in the main, are perhaps priced somewhat too optimistically for the emerging middle-class market.

A generous separation

During the three decades of Michael Mark’s tenure, Mr Price has had four CEOs and TFG has had five. Mark was destined to retire from the job in the middle of last decade and his successor, Jean-Christophe Garbino, was named as CEO-designate and should have succeeded him in 2015. But the arrangement didn’t work out and Garbino abruptly resigned. To this day, no satisfactory explanation has been given for his departure, other than a comment in the Sunday Times from Mark that “it just didn’t work out”.

Garbino received payment in the amount of R25 million as compensation for loss of office on resignation as an executive director of the company on 4 December 2015. By the time he left he had attended three board meetings and received salary and benefits worth R2.2 million. This was a remarkably generous separation package by the Truworths board for someone who had scarcely set foot in the business.

Prior to his extremely short tenure at Truworths, Garbino had spent 22 years at Kiabi, a French budget fashion retailer, the last seven years of which being as CEO of the company. Perhaps his experience at Kiabi would have served him well had he stayed and set Truworths on a potentially different course. But that is in the realms of speculation and we will never know.

Although there has been a temporary improvement in certain of Truworths metrics in financial 2021, thanks to a favourable base effect when making comparisons with 2020, longer-term erosion is still intact. 

Unless Truworths can change its top management direction, and quickly, it will likely see its financial metrics deteriorate even further and lose more ground to its competitors. This is reflected in the very poor rating of the share. On a Price/Earnings ratio of only 8.3x, Truworths is the second cheapest share in the retail sector.

The Primark trademark fight

A couple of years ago, Truworths started using the Primark label in South Africa, on the grounds that it hadn’t been used for at least five years by the Irish parent company and thus it had ceased to be protected. And although Truworths has won the first round in court, I believe that Primark will eventually win back its right of use from Truworths. There are at least two relatively recent precedents in SA law that inform us that Truworths is in the wrong.

It is understandable why Truworths wants to use the Primark label. Like Zara and H&M, it is lower-end and appeals to customers who want fashion at an extremely low price. And like Zara and H&M, it would probably gain a loyal following in SA very quickly for all the reasons mentioned earlier. Most importantly, it allows Truworths to gain a foothold in the lower-end fashion segment that is currently dominated by Mr Price and TFG. In so doing, it would be able to increase its top line.

Most, if not all of Primark’s South African customers would be totally oblivious of the fact that there is no relationship between Primark in SA and the real multinational Primark. This might backfire on Truworths in the longer term if South African customers access the genuine Primark website and discover that products shown there are not available in SA.

Source: Primark website

Primark, a subsidiary of Associated British Foods (ABF), first registered its Primark brand in SA in 1976 and to date has never used the trademark in SA. In South African law, a third party such as Truworths can cancel a trademark if it has not been used for five years. In 2018 Truworths filed a cancellation action against Primark’s registration for the Primark trademark on the grounds that this trademark was not subject to use. In the action at the time, Primark’s counter-argument was that, because Primark is an internationally well-known brand, the non-use of the trademark was irrelevant and that Primark’s registration should be protected from cancellation.

However, the Supreme Court of Appeal (SCA) disagreed, finding that although the Primark brand was well-known in the UK and elsewhere, it was not well-known in SA. Therefore it did not qualify for protection if it had not been used for five years.

But there was a sting in the tail that could ultimately be negative for Truworths in the longer term. The SCA commented on Truworths’ dishonest motivations and approach. In the initial court papers, Truworths stated that it only wanted to use the Primark label on some clothing lines without actually opening a chain of Primark stores. It has become clear that Truworths does indeed intend opening a chain of Primark stores.  At end-June 2021, 11 Primark stores were operating in South Africa.

A similar legal situation can be found in the case of McDonalds, the well-known multinational fast-food chain in its actions against George Charalambous and his partner Chicken Licken founder George Sombonos. The two Georges attempted to use the McDonald’s trademark in SA in the 1990s on the grounds of non-use of the trademark. While they were partially successful in being allowed to use a slightly different version of the name (MacDonald’s instead of McDonald’s), Charalambous and Sombonos lost on appeal in 1996 and McDonald’s won the rights to use all of their own trademarks in SA.

Closer to Truworths’ business is the case of LA Retail vs the US Polo Association (USPA). LA Retail, a South African apparel producer, had produced copycat versions of the Ralph Lauren-owned Polo brand products in SA for many years. The only difference between Ralph Lauren’s original logo with two polo-playing horsemen and LA’s logo was that in the Ralph Lauren products, the players faced right and in the LA logo they faced left. LA and Ralph Lauren had an agreement going back many decades that they could use this arrangement in SA and both parties appeared to be happy.

But in 2019, the USPA and its SA affiliate Stable Brands (Pty) Ltd won an important legal battle against LA Group in terms of which over 40 LA Group trademarks using Polo in the name were required to be cancelled and expunged in the trademark register in SA.

Although Truworths has won the first round in its attempt to retain the use of the Primark label in SA, it should be noted that Primark intends to take “whatever steps are necessary to protect its trademark and hard-earned reputation” – Primark and ABF are formidable opponents. Not only is Primark a true multinational retailer, but parent company ABF has long-established links in many countries, including South Africa. It knows the South African corporate and legal landscape well and Primark will no doubt be well aware of the potential for its brand in South Africa.

I believe that the fight for Primark’s right of use of trademark in SA is far from over and that ultimately, Primark will win. In this event, Truworths will have to find an entirely new avenue for tapping into the lower-end fashion market. Truworths already has a lower-end fashion chain called Identity that could presumably be used to increase the group’s top line.

It therefore seems surprising that Truworths would want to go the potentially hazardous route of using a multinational brand such as Primark without the owner’s permission.

Next week, Chris will deal with more of the discretionary retailers on the JSE, like Mr Price, TFG and Pepkor.

Ghost Global (Ford | TSM | Berkshire fossil fuels | Costco | Twitter)

Jordan Theron
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Ghost Global (Ford | TSM | Berkshire fossil fuels | Costco | Twitter)

Ghost Global is a new weekly segment that will be brought to you by the Ghost Grads on a rotational basis. This week, Jordan Theron updates us on earnings from some significant US companies.

Ford: feeling a little fragile?

Ford sold 152,262 vehicles in June, up 31.5% year-on-year. This was due to the increase in truck and SUV deliveries and its new all-electric pickup trucks. Whilst this is positive, US auto industry sales are down 11%, showing difficulties replenishing car dealerships and high levels of inflation forcing buyers out of the market.

For the first 6 months of 2022, sales were down 8% reflecting the current supply chain crisis dogging the global economy. This problem has led to decreasing inventory levels.

Can the old-time heavyweight giant pull its weight with its shiny new F 150 and take on the likes of Tesla, VW, and Toyota? With a YTD share price performance of -46%, they’re going to need to start finding their feet in this increasingly competitive electric car market.

Pass the chips

With the world becoming increasingly reliant on technology, Taiwan Semiconductor Company (TSM) is a stock you should care about even if you don’t own it.

TSM produces semiconductor chips which are used in everything from cellphones and cars to rocket ships. They reported better than expected earnings, with June sales up 18.5% YOY and revenue for the 6 months to June being $34.41 billion.

Even though the stock is down 36% YTD, it has produced a share price CAGR of 17.6% over 5 years.

The threat to TSM is a potential drop in demand for its chips, either due to lower consumer demand or oversupply in the market. TSM has to invest a huge amount of capital in R&D and facilities that manufacture chips (known as a “semiconductor fab”), which leaves the company exposed to supply / demand dynamics. Political tensions with mainland China also can’t be ignored.

With the full June quarter results coming out later this week, this is a stock you will want to keep an eye on.

Warren Buffett and fossil fuels

Its pretty hard to talk about investing in the stock market without talking about the legendary Warren Buffett. From delivering newspapers to becoming the Oracle of Omaha, Buffett has had arguably the largest impact on the investing world of anyone. He is the CEO of Berkshire Hathaway, which recently increased its stake in Occidental Petroleum to 18.7%, an investment valued at around $11 billion after the rapid spike in the oil price. The brent crude oil price has risen from as low as $72/barrel to as high $120/barrel this year.

This rise can be attributed to various factors such as poor energy policies from western countries, an increase in demand after the pandemic and a supply crunch from the conflict in Ukraine. We may be suffering at the pumps, but the big oil companies are printing money at a rate that even Jerome Powell would be impressed by.

Occidental Petroleum is up 110% this year and is trading on a Price/Earnings multiple of around 9x. Despite huge inflationary consequences for consumers around the world from the current oil price, Buffett clearly doesn’t see that trend slowing down. Is he too eager about this cycle, or is he slowly capitalising on an opportunity we are all ignoring due to the new climate change agenda?

Costco is cashing in

The famous value retailer has released strong monthly sales numbers for June, beating expectations with net sales jumping 20.4% YOY to $22.78 billion. This is further proof of the slow and steady winning of market share from its competitors in a difficult economic environment.

The really impressive number is the 18.1% increase in same store sales, which beat Wall Street expectations of 14.1%. With its business model focusing on membership fees to help subsidise great in-store prices, as well as cheaper gasoline (Jordan lives in the US so he’s using the right term here!) to entice customers to purchase more goods, it seems Costco might just have found its sweet spot in this fragile economy.

This recent success has led to speculation about a potential cash dividend to reward shareholders with the balance sheet looking juicier than normal, making this proudly American company one to keep an eye on.

Turmoil at Twitter

Who can forget the buzz created in the streets (both tarred and virtual) by the announcement that Elon Musk offered to buy Twitter for $44 billion?

With an increasingly political and polarizing environment in the US, this created massive waves with most Republicans praising the South African-born Musk’s free speech stance vs the Democrats crying wolf about his increasing global influence due to his enormous wealth and more libertarian approach to public policy.

He has recently notified Twitter of his intention to withdraw his offer due to Twitter’s inability to validate that less than 5% of its accounts are spam or bots. Interestingly, this has resulted in a 2% rise in Tesla stock while leading to a drop in Twitters stock by 5% in day trading and another 5% overnight.

Twitter has become a controversial platform for many reasons which we need not mention, but it should provide for some good entertainment in the coming months with Twitter’s plan to legally bind Musk to his original offer.

Only time will tell what will happen to the public town square of the new world, but for now a cautious approach is best with Twitter stock.

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Ghost Bites Vol 44 (22)

The Finance Ghost
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Ghost Bites Vol 44 (22)

Corporate finance corner (M&A / capital raises)

  • You may recall that Remgro and MSC Mediterranean Shipping Company made a rather surprising offer for Mediclinic at the beginning of June. The board of the hospital group told the billionaire families exactly where to put that offer, possibly with medical assistance if needed. Since then, there have been four more proposals of which three were rejected. The fourth one is far more interesting, valuing Mediclinic at 504 pence per share. This is a 35% premium to the price on the day before the initial offer was made. The latest offer is 8.9% higher than the initial proposal. The independent board has noted that if this becomes a firm offer, they would be willing to recommend it to shareholders. As UK law applies here, there is a colourfully-named “put up or shut up” clause (no, really) that requires Remgro and MSC to either make a firm intention offer by 4th August or walk away. Although there is still no guarantee of a deal here, a 8.6% jump in the share price on Thursday shows you how the market feels. At the current exchange rate, that’s a potential offer of R101.20 per share vs. the closing Mediclinic price of R94.90.
  • This Groupe Canal+ / MultiChoice thing just isn’t going away. The French media company has bought even more shares in MultiChoice, taking its stake to over 20%. We would have called that a “significant minority” stake in my investment banking days, which is the level at which things are starting to get serious. We don’t know what the intention is with this MultiChoice investment, but companies don’t build up a 20% holding with no plan in mind. Canal+ is owned by Vivendi, a listed French media giant with a market cap of €10 billion (around 3.5x the size of MultiChoice).
  • Bidvest has acquired 100% of BIC Australia, which has nothing to do with those orange pens that most of us held at some point in time in our school careers. For the younger readers, there was a world before iPads believe it or not! BIC Australia is a private company that offers integrated facilities management services. Cleaning services are at the core, with a full range of hygiene, waste and similar services offered. The client base is primarily A-grade offices in New South Wales. The price is based on an enterprise value for BIC Australia of R1.8 billion, which is the value of assets in the business less any excess cash. The actual cash payment would depend on how much debt is in the business vs. equity. Bidvest is paying for this with the proceeds from the bond issuance in October 2021. The management team have signed service agreements and remain committed to the business.
  • Alexander Forbes announced in March that Prudential Financial (listed on the New York Stock Exchange) had agreed to acquire 14.83% in the company from Mercer Africa, a subsidiary of Marsh McLennan Companies Incorporated (also listed on the NYSE). The deal has closed and the price was R5.05 per share excluding the dividend declared on 6th June and payable on 11th July. Prudential also intended to make a partial offer to other shareholders if the Mercer deal went ahead, which is now the case. A partial offer takes Prudential to a maximum 33% stake in Alexander Forbes, below the 35% threshold that triggers a mandatory offer. ARC Financial Services holds 41.47% of Alexander Forbes and will not accept the partial offer. A circular will be sent out in due course with the terms of the partial offer.
  • Sirius Real Estate has completed the sale of its £16 million BizSpace Camberwell business park in London. The net initial yield is only 2%, which means the selling price was really high. In fact, Sirius achieved a 94% premium to what it paid for the asset in November 2021! Full marks to Sirius here – the company has made a song and dance about its ability to create value through active management of assets and we’ve seen it come through in this sale.
  • Life Healthcare has registered a R7 billion Domestic Medium Term Note Programme Memorandum with the JSE. If you’re interested in what a debt raise on the JSE looks like, you’ll find all the documents at this link.

Earnings updates

  • Deutsche Konsum REIT is one of those almost pointless listings on the JSE, as the stock practically never trades. Nonetheless, the group gives us insights into the convenience retail property market in Germany. That’s rather niche, I know. The fund has acquired six more properties on an initial acquisition yield of 8.6% with a vacancy rate of 1.6%. In the current financial year, the fund has managed to acquire 21 properties at an average initial yield of 8.5%. The fund also managed to sell five properties on which it made a gain. The total portfolio is 179 properties. As Deutsche Konsum offers such interesting exposure to the German market, it’s a pity that there is no trade on the JSE.

Share buybacks and dividends

  • African and Overseas Enterprises as well as Rex Trueform (separately listed but part of the same group) have declared dividends on their 6% cumulative preference shares. I’m not close to the detail on this group but I did notice that the African and Overseas Enterprises preference shares are “participating” preference shares, which means they can achieve a return above the 6% coupon depending on the terms of the shares and what triggers that participation.

Notable shuffling of (expensive) chairs

  • There’s another senior change at York Timber, this time with the resignation of the company secretary after a period of 9 years at York.
  • Woolworths has appointed Nombulelo Moholi as Lead Independent Director. Ms Moholi has served on the board in a non-executive capacity since July 2014.
  • AngloGold Ashanti has appointed Ian Kramer as Interim CFO after the retirement of Christine Ramon. The company is following a “comprehensive international search process” for a permanent CFO. Kramer is an internal appointment and will no doubt be hoping that the international process comes up empty.
  • Netcare’s Chair Thevendrie Brewer has resigned as her family have decided to emigrate. I guess load shedding was the last straw. Ms Brewer has been in that role since April 2018 and on the board since 2011. Netcare hasn’t announced a new Chair yet.

Director dealings

  • An entity related to the CFO of Famous Brands has bought CFDs on Famous Brands worth over R825k. This is a pretty serious punt at the shares and ties up with what I’m seeing from the property REITs who have commented on how “entertainment” tenants are having a far happier time of things at the moment.
  • The recent insider buying at Raubex has been something to behold. The latest purchase is significant – a R700k acquisition of shares by the recently appointed CEO of the group.
  • Another company that has seen regular buying by directors is Kaap Agri. The latest purchase is by a non-executive director to the value of R145k.
  • Value Capital Partners is still piling into PPC shares, with around R9 million worth of shares acquired in the past three days. We know about this because there are directors on the PPC board appointed by Value Capital Partners as an anchor shareholder. The share price had a huge day, closing over 15% higher. Even with that move, it’s still nearly 40% down this year.
  • Telkom directors received shares in the company and appear to have run for the hills, with major disposals by several directors. The announcement doesn’t say that this sale was a portion of the share-based awards in order to cover taxes payable, so I’ll assume that this was an outright sale because they don’t want the shares. At least I have something in common with Telkom directors, because goodness knows I don’t want the shares either.

Unusual things

  • I can see that Kibo Energy is one of those companies that will announce every step of its journey in the renewables space, much like Renergen does with its projects. To be fair, investors in these types of businesses tend to hang on every word. In this case, the news is that Kibo has committed to purchase the first two proof of concept CellCube batteries that use fancy technology. Kibo has a strategic framework agreement with CellCube to deploy long-duration energy solutions in Southern Africa.
  • With Irongate (the old Investec Australia Property Fund) leaving the market as part of the buyout by Charter Hall, Fairvest B shares have been promoted to the FTSE/JSE Capped Property Index. This means that Fairvest will be bought by any ETFs tracking the index.
  • Although it comes through as director dealings, the disposal of R13.8 million worth of shares in Finbond by Protea Asset Management LLC is actually an unbundling of shares to the underlying investors in that fund. Protea is linked to Sean Riskowitz who sits on the Finbond board.
  • MiX Telematics has raised a R350 million general credit facility from Investec and an uncommitted general credit facility of $10 million.

Who’s doing what this week in the South African M&A space?

Marylou Greig
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Who’s doing what this week in the South African M&A space?

Exchange Listed Companies

In May, a consortium comprising Remgro and MSC Mediterranean Shipping Company proposed to the Board of Mediclinic International a possible cash offer to acquire the Mediclinic shares not already held by Remgro at a price of 463 pence (R88.43) per share. The proposal was rejected on the grounds that the offer significantly undervalued Mediclinic and its prospects. At the time, Remgro which currently holds a 44.6% stake in Mediclinic, said that it would consider its position. This week Mediclinic announced it would progress with talks on the consortium’s fourth proposal which values Mediclinic shares at 504 pence per share – a premium of 23% to the share price of 411 pence on June 7, the day prior to market speculation. In line with regulations, the consortium must make a firm offer by August 4, 2022.

Bidvest has announced the acquisition of B.I.C. Services, a niche integrated facilities management services provider across office, commercial and education sites. The acquisition is for an enterprise value of A$160 million (R1,8 billion). It has been some time since a South African corporate has made an acquisition in Australia, not surprising given the poor track record of those who have gone before.

Huge has acquired Tethys Mobile, currently in Business Rescue, from shareholders and creditors for an undisclosed sum. Once implemented, Huge will change the name to Huge Digital Enablement. Tethys was SA and Africa’s first mobile virtual network operator when it launched to the market in 2006.

Deutsche Konsum REIT-AG (DKR) has acquired a portfolio of six mainly food-anchored local retail properties in Saxony and Saxony-Anhalt. The properties which have a combined rental area of 9,000sqm were acquired for c.€9,2 million.

Both Delta Property Fund and Texton Property Fund have notified shareholders that property transactions announced in 2021 have been terminated due to the inability of the purchasers to fulfil conditions precedent. Properties in question were the sale by Texton to Stonehill Property Group of the Forestrust and Loop Street Properties for an aggregate consideration of R397 million and the disposal by Delta of the Fort Drury and Sediba properties to Central Plaza Investments 199 for R76,5 million.

Unlisted Companies

Lonsa Everite, together with black-owned and managed South African private equity firm Legacy Africa Capital Partners and Swartland management, have acquired 100% of the issued shares in Swartland Investments and Swartland Insulation, as well as the freehold properties. Swartland is a manufacturer and supplier of wooden and aluminum doors and windows, garage doors as well as XPS insulation and cornices. The business operates in Southern Africa, the UK and the US. The transaction value of c.R1,3 billion was funded through a combination of equity, vendor deferred payment agreement and R660 million of debt financing.

In another deal, Legacy Africa Capital Partners has invested an undisclosed sum in power solutions provider Continuous Power Africa (CPA). The investment will accelerate CPA’s expansion into new markets beyond telecommunications and grow its range of products.

Fintech startup Sava Africa, a local spend-management platform, has raised US$2 million in pre-seed funding. The platform combines bank accounts, mobile wallet, payments, accounting integrations and invoice and expense management tools. The round was led by Quona Capital with participation from Breega, CRE Ventures, Ingressive Capital, RaliCap, Unicorn Growth Capital and Sherpa Ventures. Funds will be used to launch its product in South African and Kenya.

Alaris, which delisted from the JSE in February this year, has expanded its footprint in Europe with the acquisition of Kuhne electronic, a German electronics engineering company. Financial details were undisclosed.

DealMakers is SA’s M&A publication
www.dealmakerssouthafrica.com

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