Market lukewarm to Reinet deal

Cape Town - The market hardly seems enthralled that Reinet Investments, the Rupert family's newest investment vehicle, is picking up pieces from the Lehman Brothers' bankrupt estate.

The first trading session after confirming proposals to buy two private equity funds belonging to Lehman Brothers Merchant Banking (LBMB) saw Reinet down around 0.3% to 954c on the JSE.

If anything, Reinet - which trades at a discount of roughly 30% to its intrinsic net asset value (NAV) - merely followed followed the weaker showing in British American Tobacco, its anchor investment, representing more than 80% of Reinet's value.

On Wednesday evening, Reinet advised shareholders that it proposed buying into LBMB Partners IV LP and LBMB Partners IV (Europe) LP. Part of the transaction would see Reinet commit $230m to existing and new investments.

Market sources suggested the muted response from the market to the Lehman deal was understandable, considering the paucity of nitty-gritty financial information released about the transaction.

In a brief statement to shareholders, Reinet simply advised that the Lehman deal would not have a material impact on the group's NAV.

The most common question around the transaction is why Reinet opted to make its first investment in another investment vehicle, especially when current market conditions probably present opportunities to invest directly in some of the world's best companies at seemingly reasonable prices.

A market watcher asked whether Reinet would have effective control over the private equity funds, noting that Rupert family companies traditionally aimed for control or significant influence in investments.

There were also suggestions that the Lehman private equity funds - which Fin24.com ascertained include stakes in a hospital linen supplier, a railway components manufacturer and a hi-tech bicycle maker - don't really fit the investment criteria usually associated with the Rupert family.

Over the years the Rupert family has preferred investments in strong global brands that have well established management and reliable cash flows.

But it is not the first time that Rupert family-controlled companies have tilted at investment companies. SA-based Remgro holds a major stake in Kagiso Trust Investments, while technology-aligned Venfin holds stakes in investment specialists that target China and the Far East.

- Fin24.com