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.