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I HAVE always liked clothing and textile group Seardel - not as an operational entity but as a store of immense property value.
Of course, the only realistic way to unlock that property value - which accounts for a large chunk of the company's 200c per share net asset value - is for the struggling clothing and textile operations to shut down.
But that might not happen too soon. New controlling shareholder HCI appears to be relatively confident it can fix Seardel, and must be strongly commended for its "nettle-grasping" efforts to date.
But there is a long way to go before Seardel can be considered a viable investment. And judging by how much the share is discounting last stated net asset value, the market is not exactly enamoured with either operational prospects or the long-term value proposition.
HCI, on the other hand, believes there is not too much downside at asset-rich Seardel - and recently took umbrage with an unnamed analyst who was critical of the sudden veer into clothing and textiles (see Finweek of October 22).
HCI's efforts to recover a substantial sum (in excess of R300m) from former Seardel directors were well documented on Fin24.com this week.
Some might argue that litigating former directors is a desperate act by a company in a desperate situation, and that HCI should be concentrating on operational matters at a vulnerable Seardel.
I can't say I'm terribly surprised by legal proceedings. A number of astute investors have long suspected Seardel, under Aaron Searll, was - how shall I put this politely- not exactly run like a tight ship.
A few years ago I broke the story about how a sprawling Plettenberg Bay beach house - apparently used exclusively by the Searll family - was listed on Seardel's property register.
No matter that Seardel sold the property at a sizeable profit (ironically to Searll), the presence of a luxury property on the Seardel books certainly suggested an excessive corporate style.
If questionable actions by former directors are still causing harm at Seardel, I reckon HCI is doing the right thing by litigating. I don't think too many minority shareholders - save the good Dr Searll - will object to Seardel spending some time in the courts, especially if it means recovering substantial amounts of money.
Sure, HCI has a reputation for playing hardball on the corporate playing fields. But it is going after ex-directors on very specific issues, which suggests HCI may have strong case.
Certainly there's enough evidence in Seadel's annual reports to suggest there were some cosy arrangements with former directors.
For instance, older Seardel annual reports highlight a number of lucrative related party transactions.
Seardel has forked out at least R25m over the last three years for leases on properties owned by companies controlled or part owned by Searll.
Seardel has also over the years used the services of two companies - Searay BD100 Charters - in which Searll has an interest. Sales were also made to a company called Lining and Textiles Distributors CC, in which the Searll family has a 30% interest.
Seardel's older annual reports will also show that the company used the unspecified services of Crystal River Consultants - a company owned by an undisclosed Searll family member. Payments to Crystal River amounted to over R2.5m over the last three years.
The most significant related party transaction lies in a R98m loan from Grawood Investments - a company in which Searll is the sole shareholder.
Debt-laden Seardel paid Grawood - who ironically earned R500 000 as an underwriting fee in the R300m rescue rights offer last year - over R20m in interest during the past three years.
I note that the Grawood loan has not been secured. Seardel's annual report noted that "despite ongoing discussions with Dr Searll and his representatives, the group has as yet been unable to reach any agreement as to the basis on which security for the loan may be afforded, nor have any terms of such proposed security been finalised".
By contrast, a special Security SPV was formed in 2008 to provide security to Seardel's landing banks: Absa, Standard Bank, Nedbank, Investec and the State Bank of India.
Perhaps any windfalls from Seardel's court actions can be used to settle up with Grawood which must, judging by Seardel's recent trading statement, be feeling a little insecure right now.
Cadiz and costs at Super Group
Am I alone in being surprised to see that specialist investment boutique Cadiz is the second-largest shareholder in troubled transport conglomerate Super Group?
According to Super Group's rights offer circular, Cadiz holds 114 million shares in Super Group - equivalent to just over 20% of the company.
As at June 30 2008, there was nary a sign of Cadiz on the list of Super Group's biggest shareholders, which means the clever Cape Town boys are a recent passenger.
As far as I can see, Sanlam Investment Managers - which was a 10% shareholder - no longer features on the circular's list of biggest shareholders. Perhaps Sanlam (and others) were not keen to refill Super Group's depleted tank.
In any event, Cadiz now ranks as Super Group,s second-biggest shareholder behind those faithful chappies at Allan Gray, who I see have bumped their stake up to 28%.
I've never regarded Cadiz as corporate opportunists (in the mould of a PSG or Brait), but their large bet on Super Group is most intriguing.
What also struck me about Super Group's circular is just how much the R1bn rights issue will cost - and, perhaps more pertinently, just how much certain investment institutions and banks will make on the deal.
The total cost of the fund-raising exercise is estimated at R58m.
There's R40m in underwriting costs that is shared between Absa, Barclays, Allan Gray, RMB Unit Trusts, Futuregrowth, Investec, Nedbank and KADD.
RMB gets R2m in facility fees as well as R7m for merchant banking and corporate advisory services. Legal eagles Weber Wentzel get R4m, while Fluxmans (whose partner Phillip Vallet is a Super Group director) gets R1.75m.
Just to put things in perspective, the cost of the rights offer is equal to 17% of Super Group's market capitalisation.
Nice work for some of Super Group's rescuers.
Come right, SABC
It's not often you attend an annual general meeting (AGM) where the host company wishes its larger rival would dig itself out of a hole.
At the HCI AGM this week, chairperson Marcel Golding pointed out that it was not beneficial for television subsidiary e-tv to have the SABC in disarray.
While one would think that a weak SABC would leave a gap in the market for the strongly profitable e-tv, Golding explained that with 75% of the market the state broadcaster really set the advertising rates.
So if the SABC dropped its rates to win back market shares, e-tv would probably have to do the same. Hence Golding's frank admission that e-tv would like to see the situation stabilised at the SABC.
Noting e-tv's surprisingly sound profit performance in the year to end-March 2008, HCI shareholder Abe Gordon asked whether it would be possible for e-tv to secure the SABC management contract.
Unlikely, but not an entirely outrageous idea by any means.
- Fin24.com
