Zeder hangs tough

2011-07-28 00:00

Finweek readers probably won’t be too surprised that PSG’s “preferred investment vehicle” – Paladin Capital [JSE:PLD] – is being delisted after just more than two years on the JSE. Last month we debated the possibility of Paladin being reincorporated into PSG Group [JSE:PSG] (“Delisting or just a clean-up?” 30 June) after interpreting developments and utterances at PSG’s annual general jamboree.

While some might consider it a monumental waste of time and resources to separately list and then delist Paladin, people must recognise the nature of private equity. Occasionally there’s a game-changer. And in Paladin’s case the investment in Curro Holdings – the recently listed private education venture – was just such a game-changer. As things stand at Paladin, two investments – the high-flying Curro and unlisted empowerment vehicle Thembeka – comprise close to three-quarters of its underlying value. As PSG and Paladin CEO Piet Mouton pointed out at the AGM, even if some of the smaller investments (numbering around 10) doubled or tripled in size there wouldn’t be a material effect on value.

The proposal to unbundle Curro is perfectly logical, leaving the deep-pocketed (or resourceful) PSG the dominant shareholder in a fast-growing business that may well require further capital injections in years to come. In fact, PSG’s structure looks far neater having mainstay investments in Capitec Bank, PSG Konsult (a candidate, we’re sure, for a separate listing in better market conditions), Curro and agribusiness investor Zeder Investments [JSE:ZED]. It also removes the rather pointless arrangement where Paladin was paying management fees to PSG, its biggest shareholder by far.

But what happens to Paladin once it’s folded under the wing of PSG? There’s no doubt PSG will want to cling to its 49% stake in Thembeka, which holds an attractive portfolio of listed and unlisted assets. Thembeka is also a deal-maker and, as such, might even be viewed as a “black Paladin”.

Paladin’s strategic stakes in mining services group Pre-Crete Nozala and feisty junior miner Petmin might also be nurtured – although PSG would probably find no shortage of buyers to ensure a profitable exit.

It’s the smaller investments – such as IQuad, Erbacon Investment Holdings [JSE:ERB], Top Fix Holdings [JSE:TFX] and others that could prove a headache. Mouton says every effort will be made to grow or sexy-up those smaller investments. But PSG surely doesn’t want to waste valuable management time on interests that won’t even register a blip on the sum-of-parts valuation?

Though it’s not a great time to sell (especially those infrastructure stocks) there may be opportunities – including MBOs, delistings, private equity tilts for PSG to quietly (read: “honourably”) – to dispose of its rats and mice.

With the Paladin predicament largely resolved, there may now be questions about the future of Zeder as a separately listed entity. Much like Paladin, Zeder is dominated by two investments: Kaap Agri (a backdoor into Pioneer Foods) and a strategic stake in liquor group Distell (via Capevin). The balance of the portfolio comprises smaller investments in a handful of agribusinesses.

Mouton says it’s unlikely PSG will consider buying out minorities and delisting Zeder. For one thing, the business was created for a specific purpose (chasing agribusiness opportunities). PSG also holds only 40% of Zeder (compared with the very dominant shareholding in Paladin) – which means a buyout of minorities would probably cost in excess of R1,5bn. Besides, Zeder looks intent on bulking up its existing investments – as evidenced by its recent tilt at fruit exporting specialist Capespan. Indeed, advances on promising (and value-laden businesses) such as NWK and Suidwes also appear to be ongoing.