A damned close-run thing
Fervent opposition to the Edcon bid from some fund managers may have been counter-productive
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.