A damned close-run thing

Fer­vent op­po­si­tion to the Ed­con bid from some fund man­agers may have been counter-pro­duc­tive

Finweek English Edition - - Companies & markets - BY MICHAEL COUL­SON

THE ED­CON PRIVATE EQ­UITY deal may be done and dusted – chances that a court will over­turn an 80% vote are neg­li­gi­ble – but a few as­pects are worth pon­der­ing. First, the vote. Of 544m el­i­gi­ble shares, 389m were rep­re­sented at the meet­ing by prox­ies held by the chair­man. That’s a re­mark­able 71,6% of the to­tal. And in­clud­ing votes cast or ab­stained at the meet­ing (plus prox­ies dis­al­lowed for ir­reg­u­lar­i­ties) 419m shares were present – 77,1% of the to­tal.

That’s tes­ti­mony to the emo­tion the bid aroused. An an­a­lyst sug­gested to me af­ter the meet­ing that the fer­vent op­po­si­tion to the bid from some fund man­agers may have been counter-pro­duc­tive, as it en­sured that those who favoured the bid lodged their prox­ies.

Sec­ond, while 80% seems hand­some, only 20m shares vot­ing the other way would have taken the ma­jor­ity be­low the 75% re­quired. That could have meant just one in­sti­tu­tion.

Put an­other way, the Pub­lic In­vest­ment Com­mis­sion­ers (PIC) – whose Brian Molefe had said the price was too low – is re­ported to have sold more than 5% of its Ed­con eq­uity ahead of the clos­ing date. That locked in most of its profit, which is fair enough, but it could eas­ily have de­cided on a dif­fer­ent approach – which might have scup­pered the bid.

As the Duke of Welling­ton said of the bat­tle of Water­loo: It was ac­tu­ally a damned close-run thing.

Even now, opin­ions re­main sharply di­vided. As I men­tion else­where, talk­ing to Mark Barnes af­ter the meet­ing, his view is that any­one who op­posed the bid needed his head read, as it’s dis­count­ing some years into the fu­ture.

On the other hand, one ma­jor fund man­ager has said he still thinks the bid was at least 30% be­low true value.

But an 80% vote, how­ever per­ilously ob­tained, is in­con­tro­vert­ible. Or, to re­verse it, op­po­si­tion of only 20% may feel ag­grieved but can hardly cry foul.

Imag­ine if only a 50% vote had been needed and won by a sim­i­lar mar­gin. Then you’d be look­ing at 45% op­po­si­tion. What an out­cry you’d hear then, and with jus­ti­fi­ca­tion. It just shows the merit of in­sist­ing that pro­pos­als as rad­i­cal as this re­quire more than just a bare ma­jor­ity to be ap­proved.

And if you think I’m re­fer­ring to Sho­prite, you’re dead right.

Coin­ci­den­tally, UBS last week ar­gued that Sho­prite share­hold­ers should de­mand R38/share, 36% more than the of­fer from the Brait-led private eq­uity con­sor­tium. The row con­cern­ing Sho­prite will make Ed­con look like a pic­nic. WHAT’S HAP­PEN­ING TO HOLCIM? SHENANI­GANS IN THE re­tail sec­tor, plus the fact that in­vestors aren’t di­rectly in­volved, have drawn at­ten­tion away from an­other con­tro­ver­sial deal: Holcim Switzer­land’s de­sire to dis­in­vest from/do a black em­pow­er­ment deal with its SA sub­sidiary. We’re re­minded of it by news that Aveng, which owns 45% of Holcim SA, plans to spend R1bn to R2bn on in­creas­ing its ce­ment ca­pac­ity.

Aveng CEO Carl Grim was locked in wall-to-wall meet­ings at the time of writ­ing, so I can only spec­u­late. But it’s clear that Aveng wants to stay in the ce­ment-mak­ing busi­ness, re­gard­less of its pre-emp­tive right to buy any shares in the SA com­pany Holcim pro­poses to sell.

Holcim an­nounced that pro­posal last Au­gust, so long ago as to sug­gest that talks with its pu­ta­tive em­pow­er­ment part­ners may not be go­ing smoothly. Un­til a for­mal pro­posal is in place, Aveng can’t as­sess whether to match it, though the two are still in­volved in “con­struc­tive en­gage­ment”.

Just how much ca­pac­ity can you get for up to R2bn? Holcim’s big­ger ri­val PPC is spend­ing R1,4bn on its Dwaal­boom Batsweledi ex­pan­sion, with a ca­pac­ity to pro­duce 1,25m t of ce­ment. Aveng would prob­a­bly get sim­i­lar bang for its buck, though if Holcim matches its in­vest­ment, you can pre­sum­ably dou­ble the fig­ures up. Cur­rent na­tional ca­pac­ity is about 14m t, of which Holcim pro­vides around 5m t. Last year it im­ported about 800 000t be­cause of sup­ply con­straints and will again have to im­port this year. It’s been crit­i­cised for not an­tic­i­pat­ing growth in de­mand, but Grim has al­ways said that, un­like PPC, it prefers to wait un­til de­mand is as­sured be­fore com­mit­ting large sums.

Some will ar­gue that it’s waited too long and that in an­other few years there’ll again be a short­fall. That may be true, but what’s in­ter­est­ing for now is how Aveng plans to spend its money and Holcim’s role in its strat­egy.

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