KWV: Never mind the NAV

Johannesburg - Straight-talking PSG chairperson Jannie Mouton has questioned the valuation of 1 800 cents per share bandied about for Paarl-based liquor company KWV, which is in the throes of a takeover attempt.

PSG controls Zeder Investments [JSE:ZED], which is turn holds a 35.3% stake in KWV. Zeder also owns a 13% stake in Pioneer Food Group [JSE:PFG], the consumer brands conglomerate that is bidding 1 200c/share to buy out KWV.

Pioneer’s offer has received much flak from certain investment quarters for being too low, with a number of observers pointing out that KWV holds a net asset value (NAV) of over 1 800c/share.

Naturally, Zeder’s cross-shareholdings also meant that conflict of interest issues have been raised.

In an interview with Fin24 on Friday, Mouton was adamant that the suggestions of a PSG/Zeder conflict in the proposed Pioneer/KWV transaction should be put in perspective.

"We are professional investors, so logic should dictate that we would attempt to attract the best price where we have the larger shareholding.

"We don’t deny we have an indirect interest in Pioneer. But for the record we’d like to state that we didn’t initiate this transaction – not that this should have any bearing on the transaction or the merits thereof if anyone believes this fact or not."

Mouton stressed that Zeder was a seller of KWV, and that if anyone else came with an offer similar or better than the one Pioneer had on the table the company would in all likelihood accept the offer.

"If anyone feels KWV is really worth 1 800c/share, Zeder will gladly sell its shareholding in KWV to them and even assist them with financing to acquire our stake as long as they put up ample additional security.

"For instance, if Danie de Wet (former KWV chairperson and a vocal shareholder in opposing Pioneer’s offer) gives us his wine farm De Wetshof as security, we will sell him our KWV stake at 1 800c/share and finance the transaction. Or if (investment company) RECM – whose director Wilhelm Hertzog also believes the value to be 1 800c/share – wants to buy our stake, we will do a similar transaction."

Mouton argues that the market could not only look at NAV when valuing a company like KWV.

He points out that a "fair profit" from operations for the financial year to end-June 2010 was R20m. "This equates to a earnings multiple of more than 40 times. Distell, which has a far more impressive track record and more brands, trades at an earnings multiple of 15 times."

Mouton stressed that KWV’s R20m operational profit in the last financial year meant a return on equity of just 2%.

"We believe the offer from Pioneer is more than fair at 1 200c/share."

Responding to Fin24’s revelation on Thursday that KWV could be subject of a second bid from UK-based liquor specialist Halewood, Mouton said PSG and Zeder could not comment on the matter.

On Thursday, Fin24 – which is in possession of an expression of interest document – reported that Halewood was keen to explore a deal with KWV, including early proposals for a listing within two years.

Mouton said: "All we can say is that Halewood’s approach is not a firm offer. They still have significant time to make a formal offer, which we understand hasn’t happened yet. But we can’t comment on whether they are a serious buyer or not."