Mergence doubles its stake in Wiese’s Brait

Mergence Investment Managers looks set to be a key player in plans to restructure investment holding company Brait after it more than doubled its stake in the company by buying shares from Christo Wiese.

The company said it had acquired 27.3-million shares from Wiese, Brait’s controlling shareholder, while also entering an agreement aimed at allowing Brait to realise maximum value from its underlying portfolio.

The acquired shares, priced at R15.40 each, take Mergence’s stake to 9% from 4%.

The deal leaves Wiese with a dominant stake of more than 40% in Brait, which has suffered a 90% reduction in its share price since it peaked at R170 in December 2015.

Wiese’s shares are held in Titan, a private company.

Business Day reported in September that Wiese had teamed up with other shareholders in Brait to propose a sweeping overhaul of the struggling investment house, including backing a R3bn share sale and clearing out its top leadership team.

After Brait’s management moved to remind investors that it intended to play a key role in the restructuring and was in talks with Titan over strategy, Wiese signalled that he was keeping his options open and talking to other potential partners.

Brad Preston, head of listed investments at Mergence, said they had now entered into an agreement with Wiese about the steps needed to realise value at Brait. He described three broad issues that had to be looked at: the renegotiating or restructuring of Brait’s debt; increasing the equity base; and selling assets.

Brait was forced to write off R14.4bn on its 2015 acquisition of UK-based retailer New Look that it undertook about a year before Britain voted in a referendum to leave the EU, dealing a blow to consumer confidence amid the country’s uncertain economic outlook.

Brait is faced with the repayment of about R9bn of debt over the next year.

In a statement released on Monday, Mergence said over the past few months it and Principle Capital, led by activist shareholder Brian Myerson, had jointly approached Titan with a proposal to unlock value at Brait and support the repair of its balance sheet. While the initial proposal was not acceptable to Titan, further discussions between them resulted in the share transaction.

The parties have entered into a voting pool arrangement representing 46.35% of Brait’s 471.5-million shares in issue. Titan, which remains in control of the pool, views Brait as a strategic long-term investment.

Also as part of the agreement between Mergence and Titan, Mergence will propose a nominee to the board of Brait. And along with Titan, Mergence “will support a strategy to strengthen the balance sheet of Brait, amend the current advisory contract, reduce costs payable by the company and pursue the sale of assets to maximise value for shareholders”, said Mergence in a media statement.

Preston told Business Day it was important that Brait was able to strengthen its balance sheet so it had the flexibility to sell assets “over the right time horizon”. Preston said if the balance sheet was strengthened, Brait would be able to realise control premiums on the sale of its assets. The assets include UKbased Iceland Foods, SA-based Premier Foods and Virgin.

A Brait spokesperson declined to comment.

THE PARTIES HAVE ENTERED INTO A VOTING POOL ARRANGEMENT REPRESENTING 46.35% OF BRAIT ’ S SHARES IN ISSUE