The im­pu­dence of a list­ing

Does any­one re­mem­ber what hap­pened in 2003?


THE AU­DAC­ITY of it all! Home­Choice – the di­rect mar­ket­ing re­tailer that de­parted the JSE un­der nasty cir­cum­stances early in 2003 – has raised the pos­si­bil­ity of a list­ing next year. Finweek closely fol­lowed the delist­ing of Home­Choice all those years ago and would have bet the com­pany cof­fee ma­chine prime mover and chair­man Rick Gar­ratt wouldn’t have ven­tured any­where near the JSE again.

For those who need re­mind­ing, Gar­ratt bought out mi­nor­ity share­hold­ers and delisted Home­Choice at a smidgen of the com­pany’s real worth. To sum it up, Home­Choice listed (and raised cap­i­tal) in the late Nineties by is­su­ing shares at 200c/share and then delisted with an of­fer of 18c/share to mi­nori­ties. But the real con­tro­versy was that Gar­ratt (and his cor­po­rate en­ti­ties that ef­fec­tively con­trolled Home­Choice and were ben­e­fi­cia­ries in the buy­out scheme) didn’t re­cuse them­selves from vot­ing but rather in­sisted on vot­ing on the scheme of ar­range­ment.

Al­though the bulk of mi­nor­ity share­hold­ers re­sisted the buy­out of­fer, Gar­ratt was able to bull­doze the scheme through. And for those who at­tended a heated share­hold­ers’ meet­ing it wasn’t as if Gar­ratt showed much re­morse at de­vel­op­ments.

Last week’s is­su­ing of a press re­lease pro­claim­ing a set of stun­ning profit fig­ures for Home­Choice in the year to endDe­cem­ber 2010 only serves to re­in­force the no­tion Gar­ratt roundly ripped off mi­nor­ity share­hold­ers (es­pe­cially the in­sti­tu­tions that couldn’t re­main on board an un­listed ve­hi­cle).

The pal­try 18c/share buy­out of­fer – which val­ued the com­pany at just R25m – was made when net as­set value (un­der­pinned by its debtors book) was closer to 200c/share.

The press re­lease trum­pets that dur­ing its 2010 fi­nan­cial year two dis­tri­bu­tions of 20c/share each were paid to share­hold­ers and a dis­tri­bu­tion of 30c/share pro­posed for May this year. By our cal­cu­la­tion (as­sum­ing there are roughly 100m shares in is­sue) means Home­Choice has re­turned R70m to share­hold­ers – more than dou­ble the value of Home­Choice at the time of its delist­ing.

What’s more, NAV was set at 661c/ share (or R660m) as at De­cem­ber last year and op­er­at­ing prof­its topped R250m. So in essence Gar­ratt is look­ing to bring Home­Choice back to the mar­ket for a cap­i­tal-rais­ing ex­er­cise fol­low­ing a pe­riod of op­er­a­tional suc­cess and af­ter plenty cap­i­tal growth and gen­er­ous div­i­dend dec­la­ra­tions have been notched up.

That’s all very con­ve­nient. But will Home­Choice show en­durance on the JSE this time around? In 2002/2003 op­er­a­tional set­backs were bandied about by Home­Choice in ra­tio­nal­is­ing why a list­ing on the JSE no longer pro­vided any ad­van­tages to the com­pany.

If you want to be bru­tally hon­est about de­vel­op­ments, Home­Choice’s ac­tion could be con­strued as merce­nary: cash­ing in by is­su­ing ex­pen­sive pa­per in the good times and cash­ing out by buy­ing back un­der­val­ued pa­per in bad times.

But one thing we should bear in mind is that some mi­nori­ties – in­clud­ing pro­fes­sional in­vestors – did opt to stay on board the listed com­pany. Though many have cashed out in a se­ries of share buy­backs since 2003, dogged share­hold­ers – many of whom prob­a­bly paid be­tween 18c to 26c for their shares be­fore Home­Choice delisted in early 2003 – will no doubt score from a list­ing.

Still, it seems Home­Choice is re­ly­ing on poor in­sti­tu­tional mem­ory, be­cause it does seem outrageous that a com­pany that es­sen­tially flipped a fin­ger at the mar­ket can now sim­ply waltz back to the JSE and raise the fresh cap­i­tal it needs for growth.

Ad­mit­tedly, there are enough young as­set man­agers who won’t re­call events more than seven years ago, but whether new in­vestors will be taken in by Home­Choice’s prospects re­mains to be seen. The mar­ket has en­thu­si­as­ti­cally latched on to Ver­i­mark’s turn­around, which sug­gests there’s an ap­petite for spe­cial­ist re­tail com­pa­nies.

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