Cape Town - Should shareholders in CapeVin Holdings and CapeVin Investments accept the buyout offer pitched by Stellenbosch investment giants Remgro and PSG?
CapeVin Holdings owns 51% of CapeVin Investments, which in turn owns a 29% stake in JSE-listed liquor giant Distell.
As reported by Fin24.com on Friday, Remgro- and PSG-controlled agri-investor Zeder has pitched mandatory buyout offers to shareholders of CapeVin Holdings and CapeVin Investments at 335 cents per share and 7 005c/share respectively.
The latter offer is really a "translated" price, and there should be few acceptances as CapeVin Investments shares shifted closer to the 7 500c mark on Friday.
The buyout offer follows a transaction that saw Zeder offered 39 million shares in CapeVin Holdings by empowerment group Phetogo.
Zeder brought Remgro - already the largest shareholder in Distell - into the mix when it nominated the Rupert family-controlled firm to receive 75% of the shares offered by Phetogo.
Phetogo is the main empowerment partner at KWV Holdings. Last year Phetogo sold off a large tranche of its CapeVin Holdings shares to Zeder to fund its participation in KWV's rights offer.
From the outset it must be acknowledged that Phetogo had its own reasons for bailing out of CapeVin Holdings, and that the offer to CapeVin minorities is merely based on the price at which the latest Phetogo share sale was settled.
In terms of pure value, it would - at least on paper - seem that the Remgro/Zeder offer seriously undervalues CapeVin Holdings.
According to Fin24.com's calculations, CapeVin Holdings - based on a 6 400c share price for Distell - should carry a "see-through" value of about 430c/share.
This would imply that the Remgro/Zeder offer is being pitched at a discount of roughly 20% on CapeVin Holdings' underlying value.
In other words a great deal for Remgro and Zeder.
"Fundamentally on the low side"
An asset manager, who is a substantial shareholder in CapeVin, told Fin24.com at the weekend that while there were reasons to look past the implied discount, the offer was fundamentally on the low side.
"In truth the CapeVin Holdings offer, at 335c/share, is cheap. It would be a give-way price for serious long-term shareholders."
He stressed that Distell was probably at the bottom of its earnings cycle, meaning it would not be the optimum time to bail out of CapeVin.
He added there was also very little liquidity in Distell, which would make it difficult for any CapeVin shareholders to buy back into such a high-quality asset at a later stage.
On the other hand, said the asset manager, the offer could well be construed as "generous under the circumstances".
He explained that that pyramid holdings companies, especially those of the unlisted variety, traditionally trade at discounts of about 15% to their underlying assets.
This, for instance, would be true in the case of Pikwik and Pick n Pay stores.
For this reason, he argued, investors could not simply apply a "see-through" value when weighing up the Remgro/Zeder offer.
"Theoretically, there is a underlying value of 428c/share in CapeVin Holdings. But if you measure CapeVin Holdings against its direct stake in CapeVin Investments, the offer only discounts the underlying value by 6%."
He pointed out that if Phetogo had sold its CapeVin Holdings shares on the over-the-counter market, the empowerment group would probably have garnered less than 300c/share.
Recent trading patterns in CapeVin Holdings (between November 2009 and the beginning of 2010) show the unlisted share changing hands in a range mostly between 280c to 290c.
That means the Remgro/Zeder offer comes at a fair premium to the recent trading range - and might just be sweet enough to entice some CapeVin shareholders to cash in.
But the asset manger warned that the latest Phetogo transaction may well be the trigger for unlocking value in CapeVin Holdings and CapeVin Investments.
Most liquor sector observers would agree that Remgro and Zeder are probably the most likely candidates to unlock value in the CapeVin/Distell structure.
Remgro last year bumped up its effective stake in Distell to over 32% after buying a tranche of shares in CapeVin Investments from the old KWV Limited.
The Phetogo deal should reinforce Remgro's position as the dominant shareholder in Distell, perhaps prompting SABMiller - which retains a 29.5% stake in the business - to rethink its position.
*The writer holds shares in Remgro