No more han­gover

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

Financial Mail - Investors Monthly - - Front Page - asks Ann Crotty

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

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