No urge to demerge
Mondi might do it, but not Sappi
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.”