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THAT creaking sound you hear is the sound of deals falling apart. And not surprisingly, black econmic empowerment (BEE) deals predicated on share prices holding above certain levels are in the van.
The problems faced by the Imperial/Eqstra/Lereko transaction announced on Friday will not be the last of their kind. The Imperial/Lereko deal was set up before the Eqstra unbundling, and Imperial/Eqstra needed to maintain a combined share price of not less than 4 839c for the debenture component, and 4 155c for the pref share component.
When the Lereko transaction was instituted in April 2005, Imperial's share price was close to R100, which must have seemed a more than adequate cushion.
Late last week the combined price was 5 470c, an uncomfortable 11% premium to a trigger value that would lead Imperial to lose about 7% of its BEE holding, Eqstra 5%, and collapse the BEE structures in favour of the funders (Absa and Rand Merchant Bank).
That's obviously undesirable for all concerned, so Imperial and Eqstra are to put up additional collateral guarantees of R100m (Imperial: R78.4m; Eqstra: R21.6m). This will reduce the trigger points to 4 150c for the debentures and 3 466c for the pref shares.
At least for the moment, that looks comfortable again. And while Imperial was unchanged on Monday, at 4 725c, Eqstra perked up 95c to 745c, taking the combined price to an even more reassuring 5 470c.
On a slightly different tack, when I last wrote about this couple in August, after their latest results, Eqstra was quoted at 1 270c and Imperial at 4 890c. Going back a little further, when Eqstra debuted in June it was quoted at 1 800c.
Value?
In current market conditions generalisations are dangerous, but it hardly seems that the unbundling of Eqstra has created much additional shareholder value. Imperial has been less volatile in recent months, but at the cost of a near 60% decline in Eqstra's share price.
What we can't know, of course, is how a combined share price would have fared had Eqstra not been unbundled. Would the leasing business have been so severely downgraded if it was still part of a bigger, more diversified group?
The other deal where, at the very least, the terms will be subject to major change is Impala Platinum/Northam/Mvela Resources.
The initial ratio was 35 Impala per 100 Northam. With Impala at R165.75, this was a 28% premium to Northam's 4 525c. For Mvela, the terms were more complicated, so let's stick to Northam.
One might have thought intuitively that share-swap transactions would not be affected by a bear market. But not so; even in the short time since the original terms were announced on 2 October, a second-tier platinum stock like Northam has shed a third of its value, Impala barely a quarter.
Northam is now 2 180c, Impala R104.10. My calculator suggests that this is equivalent to a premium of no less than 67%, which is obviously unacceptable to Impala. So it's back to the negotiating table.
Northam is by no means the worst performer, by the way. Jubilee and Eastplat have halved in the same period. But what the Northam price tells us is that, while it was to some extent supported by bid prospects, there were always strong doubts in the market whether the takeover would go ahead.
So what now? It's debatable which company needs a deal more.
This may seem an absurd statement, given the relative status of the two, but Impala must be concerned that it has pinned so much of its growth plans on an ever more tottering Zimbabwe, while the outlook for perennial battler Northam has been transformed by the implementation of its Booysendal acquisition.
Indeed, Booysendal is the plum for Impala. It didn't move on Northam until Booysendal was firmly in the bag. But that doesn't affect the principle.
It's common cause that prevailing market conditions create opportunities for corporate predators.
But while it's understandable that cash deals are vulnerable to falling share prices - at 854.60p, Lonmin is just 26% of the £33 Xstrata was considering bidding at, in August - the Northam/Impala/Mvela saga reminds us that relative share price movements count, so even paper-financed deals can go wrong.
- Fin24.com
