Cash is king

Eureka takes cover from burn­ing eq­uity mar­ket

Finweek English Edition - - Companies & Markets - SIKONATHI MANTSHANTSHA sikonathim@fin­week.co.za

DUR­ING THE YEAR to Au­gust 2007 in­dus­trial and en­gi­neer­ing com­pany Eureka said it had de­cided to “mean­ing­fully” re­duce its in­vest­ments in eq­ui­ties be­cause it pre­dicted that “mar­ket, po­lit­i­cal and cur­rency con­di­tions would be ex­tremely high risk and volatile for an ex­tended pe­riod of time”. It fol­lowed through with that prom­ise and sold off all its listed in­vest­ments apart from its 22m shares held in Set Point Tech­nol­ogy and 9,8m shares in Sab­vest Ltd. That filled its cof­fers with a R104m net profit over the pe­riod.

How­ever, that de­ci­sion also cost Eureka one of its only two ma­jor share­hold­ers. The Clar­i­den Bank has sold its 47,3% in­ter­est in Eureka back to the Price fam­ily, which pre­vi­ously con­trolled 51% of the com­pany. Clar­i­den Bank’s bailout comes af­ter Eureka re­ported a measly R16m net profit in the year to Fe­bru­ary 2008, leav­ing the Price fam­ily the sole real in­vestor and ex­pos­ing the com­pany to a po­ten­tial delist­ing in the near fu­ture.

“Eureka is un­likely to make any changes to its con­ser­va­tive hold­ing strat­egy in the near term,” wrote Eureka chair­man Ron­nie Price in its re­sults com­men­tary in May 2008. “It ex­pects the un­cer­tain po­lit­i­cal and eco­nomic con­di­tions to re­main in place for the forth­com­ing pe­riod and that th­ese will put fur­ther pres­sure on the val­u­a­tion of in­vest­ments in gen­eral.”

To em­pha­sise its at­ti­tude, shortly be­fore pub­lish­ing its re­sults, Eureka in­vested R40m of its cash hold­ing in euro and US dol­lar de­nom­i­nated as­sets. “At ap­pro­pri­ate times con­sid­er­a­tion will be given to in­creased in­vest­ment in hard cur­rency as­sets (in SA),” wrote Price.

Did the Clar­i­den Bank then de­cide it couldn’t wait for that “ap­pro­pri­ate” time? “We’ve been try­ing to buy the shares for quite a few years now but they weren’t avail­able,” says Price. “But all of a sud­den I got the op­por­tu­nity to buy and I took it.” Price says he’s never met the own­ers of the shares, as they were never in­volved in the com­pany. The Clar­i­den Bank bought the shares from a re­tired part­ner of Price’s back in the Nineties. “I’ve never even spo­ken to them.”

Price bought the 1,1m shares at 9500c each, valu­ing Eureka at R228m and leav­ing the Price fam­ily with all but less than 30 000 of the 2,4m is­sued shares he bought in 1983. Surely delist­ing is only a mat­ter of time? “We’ve never even thought about delist­ing. We’re just ly­ing fal­low and wait­ing for the right op­por­tu­ni­ties,” says Price. He be­lieves cash is the best as­set in the cur­rent mar­ket en­vi­ron­ment. Al­though it is pre­dom­i­nantly a cash shell, Eureka still has some op­er­at­ing en­gi­neer­ing com­pa­nies.

The Lewis fam­ily also tight­ened its grip on fash­ion re­tailer Fos­chini. Non-ex­ec­u­tive di­rec­tor Mike Lewis bought 1,3m shares at 3478c/share for a to­tal R44,8m. That adds to the shares worth R32m he bought in March to in­crease the 6,3% Lewis held in Fos­chini at end-March 2008.

En­gi­neer­ing tech­nol­ogy and sig­nalling com­pany Ansys has sought to in­crease its free float with CE Al­lan Hol­loway sell­ing 3m of his shares in the com­pany to an in­sti-

We’re just ly­ing fal­low and wait­ing for the right op­por­tu­ni­ties.

tu­tional in­vestor. Hol­loway says the com­pany is “one of the big name” fund man­agers but it asked not to be named. It al­ready owns less than 10% of Ansys’ shares. Af­ter chair­man Teddy Daka, Stan­lib As­set Man-

age­ment was the next big­gest share­holder at end-May with its 8,7% stake held through var­i­ous funds. So why is Hol­loway sell­ing? He says the main rea­son was to get higher free float and strengthen the com­pany’s in­sti­tu­tional share­holder base. But he also needed the R4,8m (160c/share) for per­sonal rea­sons. “I want to buy a big­ger house to en­ter­tain com­pany guests,” says Hol­loway. He says with the com­pany’s growth and grow­ing stature he has to re­ceive many vis­i­tors, in­clud­ing over­seas busi­ness­peo­ple.

Else­where, Lereko In­vest­ment’s Valli Moosa took de­liv­ery of his shares worth R11m in An­glo Plat­inum housed in the RPM Water­val Em­pow­er­ment Trust since 2004. Lereko was part of the em­pow­er­ment con­sor­tium that helped fa­cil­i­tate An­glo Plat­inum’s ac­qui­si­tion of min­ing rights for the Water­val Sec­tion of the Rusten­burg Plat­inum Mines, of which all con­di­tions have now been met.

Ho­tel op­er­a­tor City Lodge Ho­tel’s direc­tors were the big­gest sell­ers af­ter the high court sanc­tioned the com­pany’s BEE deal in which Bule­lani Ngcuka’s Vuwa In­vest­ments pur­chased a 15% stake for R485m. The 807 000 shares (worth over R62m) sold by six City Lodge direc­tors rep­re­sented 15% of their com­bined share­hold­ing in the com­pany.

R11m richer. Valli Moosa

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