A CAUTIONARY notice released late last Friday (January 29) by empowerment conglomerate Hosken Consolidated Investments (HCI) attracted scant - if any - attention in the mainstream financial media.
The fact that HCI's cautionary was released at practically the same time as a cautionary from gaming group Gold Reef Resorts (GRR) was certainly intriguing - at least to a number of my regular cohorts in Cape Town.
The general consensus is that HCI, which has already become a gaming sector dynamo with a major stake in Tsogo Sun, would be looking to bump up its significant minority stake in GRR.
HCI chairperson Johnny Copelyn had already hinted at this possibility at an annual general meeting last year, telling shareholders that GRR was a "space worth watching".
But let's not debate the intricacies of what might transpire from the HCI and GRR cautionaries.
Let's look a little further down the road, and speculate on a possible restructuring scenario at HCI.
Could there be a plan to consolidate HCI's gaming interests under one roof, possibly creating a corporate vehicle that could be separately listed?
Gaming assets attract attention
Perhaps it's significant that HCI's two recent casino acquisitions - the Caledon Casino and the Century Casino in Newcastle - have already been tucked into Tsogo's casino portfolio.
One would presume HCI is going to bid for control of GRR. But what if such a development entailed HCI injecting its interests in Tsogo Sun into GRR, in exchange for scrip and thus a bigger holding in an enlarged GRR?
What has been suggested to me - and please, recognise this as casual market banter - is that HCI could be looking to dismantle its current unfocused conglomerate structure by separating out its two investment gems: gaming and media.
The gaming assets will certainly attract market attention, as the collective holding most definitely ranks as the broadest spread of casino interests available on the JSE.
Media is another story. While I think e.tv has been a remarkable performer, some of my more learned contacts believe HCI would have to bolt on something sizeable to make a case for a separate media listing. Something the size of Avusa or Kagiso Media...
Of course, one matter worth mulling is e.tv's shift from analogue to digital. Basically this will see e.tv needing to generate three or four more times more content, when it may not be possible to spin the commensurate increase in ad revenue.
Now the rationale for a listing that is tagged to an exercise to raise fresh capital starts to make more sense.
Frustration and focus
Currently, I would estimate that gaming and media account for about 80% of HCI's profits and underlying value.
So if these interests are spun off, what will be the fate of the rats and mice - the Golden Arrow Bus Service, dairy products group Clover, Syntell, the much-derided Montauk Energy and the struggling Seardel?
I'd suspect these companies simply don't hold enough appeal for the market. Delisting would then become a real possibility.
But why would HCI, which has happily built up an unfocused conglomerate structure, want to make a radical change to its corporate make-up?
Clearly there's been some frustration at HCI.
Let me repeat a remark Copelyn made in HCI's annual report when bemoaning the company's share price.
He said: "One of the very few analysts writing reports on HCI came to the view that it was time to double the discount that should be placed on our shares because we had bought an asset [Seardel] in the clothing industry and this showed a complete lack of focus by management."
If being unfocused is an issue, then standing the high-quality gaming and media assets apart from the rest makes perfect sense.
Personally, I think the emancipation of the gaming and media assets is necessary to avoid future earnings being dragged back by certain of HCI's smaller interests. And here I refer to Seardel - which, I hate so say, looks like it's going to be an absolute bitch to turn around.
- Fin24.com