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Should minorities rejoice or worry?

Jul 28 2011 00:00 Marc Hasenfuss

Company Data

PSG GROUP LIMITED [JSE:PSG]

Last traded 96.33
Change -0.67
% Change -0.01
Cumulative volume 44890
Market cap 21.08bn

Last Updated: 30/09/2014 at 04:26. Prices are delayed by 15 minutes. Source: McGregor BFA

PIONEER FOOD GROUP LIMITED [JSE:PFG]

Last traded 117.99
Change 1.37
% Change 0.01
Cumulative volume 74286
Market cap 27.34bn

Last Updated: 30/09/2014 at 04:28. Prices are delayed by 15 minutes. Source: McGregor BFA

ZEDER INVESTMENTS LIMITED [JSE:ZED]

Last traded 5.75
Change -0.14
% Change -0.02
Cumulative volume 496408
Market cap 5.64bn

Last Updated: 30/09/2014 at 04:21. Prices are delayed by 15 minutes. Source: McGregor BFA

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The not entirely unexpected “resignation” of Thys Loubser as CEO at KWV Holdings might induce mixed feelings among the vociferous minority shareholders in the Paarl-based liquor group. Finweek would suspect those encouraged by developments might well be outnumbered by shareholders who are feeling a tad jittery – again.

Only months after seeing off a takeover bid by Pioneer Foods, some KWV minorities may be forgiven for feeling slightly daunted at the prospect of keeping a handle on a dominant anchor shareholder. Unlike PSG Group [JSE:PSG]/Zeder Investments [JSE:ZED] – the previous majority shareholder that took so much flak for trying to induce a merger with Pioneer Food Group [JSE:PFG] – Hosken Consolidated Investments (HCI) might be a little less diplomatic in shaking up KWV in order to release value and potential.

Not that having a more forceful shareholder in the boardroom is a bad thing. However, the timing of Loubser’s exit is rather ominous. Loubser was – no doubt at the behest of HCI – shown the door at KWV just a fortnight before the company closed its financial year to end-June 2011. That might suggest another “corked” operational performance from KWV and more questions about Loubser’s ability to secure sustained profitability for the business.

During his relatively short tenure, Loubser had greatly simplified the way the iconic KWV operated its various businesses. While Loubser cut through the inefficient cultural conventions that had hobbled KWV for decades, the scoreboard shows it still doesn’t come close to matching its former corporate cousin Distell on any number of performance measures (most notably, costs).

Loubser was clearly a marked man. It’s doubtful he would’ve survived much longer as CEO if Pioneer’s buyout attempt at KWV had succeeded. Nor does Finweek believe Loubser enjoyed the support of former anchor shareholder Zeder/PSG, which had clearly articulated a growing impatience with the lack of operational progress at KWV during Pioneer’s emotional bidding period.

Market watchers canvassed by Finweek all agreed a dramatic boardroom shake up at KWV was a prerequisite to unlocking its potential. One noted: “KWV is, in essence, a small company and shareholders need to appoint a CEO who will go in and get his hands dirty. Someone needs to get a grip on this underperforming business and make some aggressive moves.”

If that’s true then any effort by HCI – which has appointed its own man, André van Veen, as acting CEO – to drive efficiencies at KWV should be welcomed by minority shareholders. But will HCI have more success in eking a decent return out of KWV? We have to keep in mind former anchor shareholder PSG/Zeder (while ultimately making a good return on its investment) couldn’t induce a sustained spell of meaningful profits at KWV.

If anything, HCI’s recent successes at clothing and textile conglomerate Seardel should reinforce notions the R11bn empowerment group can gut out tough operational situations and cope with boardroom politics. And there’s one thing to be thankful for: cash flush KWV, unlike Seardel, has a sturdy balance sheet and has less imposing operational challenges.

Still, though the spectre of horrible year-end results for KWV (and, let’s face it, global liquor markets are sapped out and the stronger rand won’t help export revenues) might worry minorities, Finweek wouldn’t be surprised if HCI used a lack of profitability at KWV as leverage in extending a buyout offer to minority shareholders.

HCI’s intention to fortify its position at KWV – despite the matter being played down in Business Report – is quite apparent. A couple of months ago (TheSPECtacle, 19 May) we noted HCI – via submissions to SA’s competition authorities – looked determined to trigger a mandatory offer to minorities by increasing its stake in KWV beyond its current 34,9%. HCI’s position about “taking control” at KWV was reiterated in comments accompanying its recently released year to end-March results.

The million dollar question is: At what price would HCI take control? On current fundamentals, an HCI offer would probably be pitched at the same 1180c/share price it paid to acquire shares from PSG and other shareholders. Such an intention may raise the hackles of minority shareholders who bandied about values of more than 2000c/share for KWV in efforts to fend off the advances by Pioneer Foods at year-end 2010.

With the share price trading below 1100c over-the-counter it might be more diplomatic for HCI to pick up tranches of scrip on the open market – although the lack of liquidity does remain a significant stumbling block.

Gut feeling is HCI would’ve learnt from the failed Pioneer offer and only trigger a full buyout offer to KWV minorities if it already had an irrevocable commitment from a major shareholder, such as empowerment investor Withmore (formerly Phetoga). Withmore – as anecdotal evidence suggests – apparently vacillated during the Pioneer offer before teaming up with the resistant minorities. Is there still some indecision at Withmore about its position in KWV?

History will also show HCI has been quite persuasive in convincing smaller empowerment entities to sell out, as anyone who followed its determined push for a major slice of gaming group Tsogo Sun will testify.
zeder investments  |  pioneer food group  |  psg group  |  hci  |  kwv
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