Verimark wants to delist

Cape Town - Direct retailing specialist Verimark on Monday proposed buying out minorities at 50c/share and delisting from the JSE.

Fin24 anticipated such a move in late April Is that all folks? when speculating about the possible outcome of a cautionary notice issued by the struggling Verimark.

The proposal sees controlling shareholder and CEO Michael van Straaten - via the Van Straaten family trust - offering minority shareholders 50c/share.

The offer excludes a company associated with Van Straaten's family trust, as well as a black economic empowerment and staff entity. In total the minority offer covers 42 million shares, representing 37% of Verimark's issued shares.

The buyout offer - which will cost about R21m - values Verimark at less than R60m, compared with a market capitalisation of about R300m when the company listed in 2005.

The buyout offer represents a considerable premium to Verimark's recent share price, which largely reflected the market's disillusionment with the company after a series of profit setbacks. On Monday, Verimark shares jumped 120% from 20c to 44c on news of the buyout.

According to a Stock Exchange News Service (Sens) announcement, Van Straaten's family trust has already provided confirmation to the Securities Regulation Panel (SRP) that it has sufficient cash resources to meet the buyout settlement.

The fact that the family trust is cash flush should not be surprising. Van Straaten reportedly cashed out R100m after selling around half his stake in Verimark to various investors when the company was reverse listed onto the JSE in 2005.

In the two years after listing, Van Straaten also collected some generous dividends.

One well-known small cap commentator had a rather jaundiced view of the buyout proposal: "It's weird that as a listed entity Verimark was never as successful as it was when the company was privately owned."

He suggested sceptical shareholders may even wonder whether the company may have been purposefully run down to facilitate a minority buyout.

Last week Verimark reported an operating loss before net finance expense of R2.8m from turnover of R252m for the year to end February 2009. In commentary accompanying the results, Verimark directors argued that the depreciation of the rand and the bedding down of senior management changes had delayed the company's turnaround process.

Ultimately the timing of Verimark's buyout proposal will feed notions that small cap listings exercises ultimately revolve around selling high to excitable investors and buying back cheaply from despondent shareholders.

Of course, the Van Straaten family trust may well have to recapitalise Verimark with the company's recent results swathed in red. But any potential upside in the longer term will be mainly for the benefit of the Van Straatens - which is something minority shareholders will have to ponder in the next few weeks.

If Verimark is successful in its attempts to buy out minorities, it will be the fourth direct retailing company to delist from the JSE in the last 12 years.

Other direct retailing companies that have departed from the JSE with shareholder value in tatters include Mas Holdings, Housewares/Glohold and HomeChoice.

- Fin24.com