No more hangover

Could this be the takeover that actually produces a profit for KWV shareholders to celebrate?

Would somebody please put KWV Holdings out of our misery? Since 2004, when restrictions on ownership of its shares were lifted, KWV has been the source of screeds of anguished media stories about poor operating performances, threatened heritage assets and tense battles for control. If it had sold as much wine and spirits as it has generated stories over those years, KWV would not still be at the centre of a takeover bid and we in the media industry would be able to get on with writing about big companies that make profits.

But until somebody who can run it profitably and who might consider ring-fencing the heritage assets is in control, we are doomed to continue writing and rewriting the tragic story of KWV.

The good news is that just such a person might be on the horizon. But then you’ve heard that before; in fact you’ll have heard it at least four times before. First when banking magnate GT Ferreira and some of his friends started buying up KWV shares in 2004; then when retail tycoon Christo Wiese made a move; after that when Jannie Mouton swapped new shares in his PSG Group for Wiese’s shares in KWV. Finally Johnny Copelyn’s Hosken Consolidated Investments (HCI) took control in 2011 and since then (after a restructuring of the old KWV Group) suffered the ignominy of having to disclose results that were not sheltered by Distell’s dividend income.

Every six months KWV shareholders were reminded of how tough it was to sell wine and brandy into international markets even when the rand was constantly reaching new lows.

Copelyn says he’s happy with what has been achieved under HCI’s watch (through gaming and leisure subsidiary Niveus). Ask him about the absence of profits and he’ll point to what he describes as “all the cleaning up” that’s been done.

But it seems minority shareholders cared nothing for Niveus’ cleaning skills, they wanted profits. They kept up the pressure, and HCI directors had to endure several tense AGMs. Five years after HCI took control at KWV, another takeover bid has appeared on the horizon.

Given that most of the Cape’s ridiculously rich businessmen have already succumbed to KWV’s siren call, it was time that less familiar suitors from further afield would start to venture into this treacherous terrain; a terrain from which no corporate titan has emerged unscathed.

Vivian Imerman is as ridiculously rich as the men who have gone before him. He is also as skilled and colourful a businessman as any of the others. He has two possible advantages. The first is that he has experience in the drinks industry; the second is that he is not cluttering up the operational challenges he faces at KWV with having to take care of heritage assets. Imerman’s bid is only for the business. The beautiful old buildings and art works are staying with Niveus — for now.

SA-born Imerman certainly brightened up the Johannesburg corporate firmament in the 1990s. He was probably best known for entrancing the rather dour head of Anglo American Industrial Corporation, Graham Boustred. Imerman persuaded Boustred that his entrepreneurial flair and Anglo’s resources and experience would be a killer combination. So persuasive was he that Anglo poured hundreds of millions of rand into Imerman’s acquisition of Del Monte.

It was an excellent deal for Imerman, catapulting him into the major international league of deal makers. It was not so good for Anglo. Del Monte did not mark the beginning of a new, more entrepreneurial style at Anglo. And as Boustred’s power in the organisation waned, executives seemed to see more clearly how poorly Del Monte was performing.

“In retrospect it was arrogant to go for something like Del Monte, but at the time nobody challenged Boustred. He was too powerful. It was all a bit of a folly,” says one former Anglo executive director. In 1999 Anglo offloaded Del Monte at a hefty discount.

Imerman, who by 1999 was firmly ensconced in London, went from strength to strength. In 2007 he sold Whyte & Mackay to United Distillers, making a £400m profit for him and his partners. He had bought the struggling whisky company a few years earlier and managed to turn it around. Almost as important was that he then managed to sell it just months before the global financial crisis.

Now, in responding to KWV’s siren call, Imerman believes the executives at his investment company, Vasari, will be able to repeat their Whyte & Mackay success.

While this might finally be the right suitor for KWV, there are a number of reasons why success can’t be taken for granted. The most basic of those reasons is that making a profit is not in KWV’s DNA. It was set up almost 100 years ago with the noble intention of protecting farmers from the consequences of surplus wine grape production.

Over the years KWV became a powerful regulatory force but, as Western Cape farmers will tell you, it increasingly failed to execute its responsibilities with an even hand. Some farmers benefited considerably more than others and in time it became evident the organisation was being run for the benefit of a handful of farmers as well as the KWV board. To its credit it did manage to produce some highly rated brandies during this time.

The 1990s brought deregulation and the opening up of SA. In a bid to adjust, KWV converted from a co-operative to a company.

And much later, in 2004, it abandoned the requirement that only farmers could be shareholders. (This left the way open for the billionaires who believed they could get the operational assets to perform to their potential while banking the attractive heritage assets.)

Over the years KWV learnt how to deal with an open and competitive environment, but despite the efforts of a series of hopeful new shareholders, it never worked out how to do this and make a profit.

It didn’t help that the shareholder base was still dominated by farmers who tended to assume that businessmen, wanting to get hold of their heritage-rich assets, were up to no good.

“Jannie Mouton (of PSG) was attracted by KWV’s very low return on assets. He wanted to break up the company and do a deal that would have generated huge profits for him, but we don’t know what would have happened to KWV,” said one shareholderfarmer, expressing the long-term concerns of many others.

Niveus is the first of the putative “rescuers” to succeed in building a stake above 50%. It has used that position to restructure the company, splitting the operational assets from the heritage assets. Vasari is only buying the operational assets.

But before that can happen there will be a shareholders’ meeting and the (now minority) farmer-shareholders will have to be persuaded this deal is as good for them as it is for Niveus and Vasari. In its brief press statement Vasari seemed to make a point of reaching out to the wine farmers.

If the challenge of reassuring farmers can be overcome, the long-running KWV saga might finally be coming to a close.

Over the years KWV learnt how to deal with an open and competitive environment … but it never worked out how to do this and make a profit