Investors blind to risks of huge offshore deals

The initial euphoria that greeted the Famous Brands Gourmet Burger Kitchen (GBK) deal shows shareholders underestimated how tough things were about to get. Management must accept most of the blame, but a healthy dose of introspection is needed on the part of investors.

Within weeks of the announcement in early September 2016, the group’s share price soared to a record high of nearly R170. But the cracks began to appear soon after. The group’s biggest deal came back to haunt it. The stock is now hovering around R100, or back where it was four years ago.

Woolworths investors were also blind to the dangers of huge offshore deals. In 2014, shareholders approved the retailer’s $2bn David Jones acquisition. Years later, the group is reeling from the ill-judged takeover.

These deals, both poisoned chalices, show that major shareholders need to scrutinise target companies more closely.

Kevin Hedderwick, Famous Brands group strategic adviser responsible for mergers & acquisitions at the time of the GBK deal, was, in a way, on the money when he said the acquisition “will be as much of a game changer for the group as our acquisition of Wimpy SA was in 2003”.

But he was not right when he said the group was confident GBK had the potential to double its restaurant footprint within five years. In fact, the group may cut another 17 stores as part of its current insolvency process.

The Legacy Group and Nedbank’s latest Sandton landmark, the ultra swanky The Leonardo, set a new benchmark for sectional title apartment prices with the recent sale of a 580m² penthouse for a cool R60m. That translates into a rand per square metre rate of just more than R100,000, thought to be the highest price paid to date for a sectional title property in Gauteng and roughly on a par with that achieved at Sol Kerzner’s One&Only Waterfront hotel in Cape Town, where penthouses have changed hands at more than R100m apiece. T he mixed-use Leonardo, being built in Maude Street just a stone’s throw from the JSE, already towers 30m above The Michelangelo Towers. The latter, another Legacy Group development, was until recently Sandton’s tallest building. The Legacy Group’s latest Sandton skyscraper is now approaching 52 storeys and will reach 55 floors on completion late in 2019.

The development will comprise about 230 apartments, of which more than 80% has already been sold off plan. Prices started at about R3.2m when The Leonardo was launched just more than two years ago. Entrylevel apartments are selling from R4.5m. Besides its residential offering, The Leonardo also houses sectional title offices, a business centre, lounge, spa, restaurant and crèche.

But the pièce de résistance is a 3,300m² triple-storey penthouse — The Leonardo Suite — at the top of the building. This luxury abode is on the market for a whopping R250m. It will have a 900m² rooftop garden and also include a 20m lap pool, a private lift, staff quarters, a gym and a cinema.

GOURMET BURGER KITCHEN DEAL AND ACQUISITION OF DAVID JONES PROVED TO BE POISONED CHALICES