No urge to de­merge

Mondi might do it, but not Sappi

Finweek English Edition - - COVERSTORY -

MONDI – South Africa’s other pa­per and pack­ag­ing group that op­er­ates mainly in the same West­ern Euro­pean mar­ket as Sappi – is propos­ing cor­po­rate ac­tion Finweek sug­gested Sappi should fol­low two years ago. Mondi plans to de­merge its South African pack­ag­ing busi­ness and list it sep­a­rately on the JSE, of­fer­ing in­vestors a choice of busi­nesses to in­vest in.

The idea is that all the or­di­nary shares in Mondi Pack­ag­ing South Africa (MPSA) held by Mondi Ltd, the JSE-listed part of the dual listed group, will be dis­trib­uted to Mondi Ltd or­di­nary share­hold­ers. Mondi owns 70% of MPSA, with the Shan­duka Group hold­ing 25% and the Mondi Em­ployee In­vest­ment Com­pany the rest. MPSA will then be listed un­der a new name on the JSE.

The rea­son­ing be­hind the pro­posed de­merger is that MPSA’s fu­ture growth plans, par­tic­u­larly in re­gard to its rigid plas­tics busi­ness, are con­strained by Mondi Group’s dif­fer­ing strate­gic fo­cus. The de­merger would al­low MPSA to fol­low its own strat­egy and pro­vide share­hold­ers with the ben­e­fit of both busi­nesses be­ing able to take bet­ter ad­van­tage of their re­spec­tive growth op­por­tu­ni­ties.

“This is the right time to de­merge MPSA – for both Mondi Group and MPSA,” says David Hathorn, CEO of the Mondi Group. “While Mondi Group has been a very sup­port­ive owner, this move will give MPSA the flex­i­bil­ity it needs to de­velop its core growth ar­eas. MPSA is unique within the group, as no other part of Mondi pro­duces rigid plas­tics or car­ton board and there­fore the direc­tors felt MPSA would be best placed to take ad­van­tage of the con­sid­er­able op­por­tu­ni­ties avail­able to it as an in­de­pen­dent en­tity.”

The pro­posed de­merger would re­quire a “match­ing ac­tion” – un­der the group’s dual listed struc­ture – to have “an equiv­a­lent but not nec­es­sar­ily iden­ti­cal eco­nomic ef­fect” on the or­di­nary share­hold­ers of Lon­don­listed Mondi plc.

Though on a much larger scale, Finweek sug­gested two years ago that Sappi should be split in two and be sep­a­rately listed on the JSE. The idea was it could be di­vided into Sappi South­ern Africa, where Sappi has sub­stan­tial as­sets in fac­to­ries and forests, and Sappi In­ter­na­tional, which would es­sen­tially con­tain its op­er­a­tions in Europe and the United States. Though Sappi’s earn­ings are no­to­ri­ously cycli­cal, its South African busi­ness does tend to be more sta­ble than those over­seas, par­tic­u­larly Europe, where over­ca­pac­ity, pric­ing and for­eign cur­rency fluc­tu­a­tions are all fac­tors.

The move would of­fer in­vestors the choice be­tween in­vest­ing in two fairly dif­fer­ent busi­nesses. It would also al­low Sappi to un­der­take sep­a­rate cor­po­rate ac­tions, such as rights is­sues, de­pend­ing on where the cap­i­tal was needed.

But that’s not part of Sappi’s think­ing. Its re­sponse to our ques­tion about whether it would con­sider a de­merger was: “This is not un­der con­sid­er­a­tion.”

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