‘Total rugby’ takeover on cards for WP
STELLENBOSCH-based investment holding company Remgro wants a majority stake in Western Province Rugby, which went into liquidation last year, says Remgro CEO Jannie Durand.
Notwithstanding the fact that Remgro’s chairman is sportsmad multibillionaire Johann Rupert, it seems an odd move for a company with massive investments in companies such as Mediclinic and FirstRand, and a bizarre departure from its oftstated investment philosophy, which is to invest only in strongly cash-generative businesses.
WP Rugby was not even in a position to pay its players and staff last year. Remgro paid them. The commercial arm of the Western Province Rugby Union is lots of things, but cash generative is not one of them.
Durand, 50, whose conservative investment instincts are well known, says this is not about emotion or charity. There is a sound business case for Remgro’s investment.
“WP Rugby made some good money in the past so there’s no reason it can’t happen again.
“They need to change a few things, and private ownership will be one of those things.”
Remgro has a 24.9% stake in WP Rugby but will increase this to 74% when the constitution of the South African Rugby Union is changed to allow majority private ownership, which Durand believes will happen quite soon.
Thereafter, Remgro will be “much more closely” involved in the management of WP Rugby, having already made its influence felt with the appointment of UCT business science graduate and former MD of Canterbury International SA Paul Zacks as the CEO.
“We were involved in that,” says Durand. Remgro has analysed “the mistakes made and we know where the problems lie”.
He won’t reveal how much Remgro has already pumped, and will be pumping, into WP Rugby, but it is likely to be insignificant relative to its other investments.
So can Remgro justify to its shareholders the amount of management time that will be diverted to WP Rugby when it has so many other more important investments to worry about?
“That’s why it is so critical to appoint the best management team at WP Rugby. That’s our biggest job. So that we as the investor have to spend as little time as possible and let the management team run the thing.”
Nevertheless, surely, in terms of its other investments, WP Rugby is little more than a pleasurable diversion driven, dare one suggest, by its rugby besotted chairman?
“It wasn’t driven by any specific person,” says Durand. “We’ve got very much a consensus model.
“I wouldn’t call it a pleasurable diversion if you look at the amount of airtime this thing has got.
“It is totally numbing if you look at Mediclinic and FirstRand and the amount of money we’ve invested there, and the amount of airtime we get for this small thing in Western Province.”
So why is Remgro risking its considerable investment track record on such a “small thing” which was always going to bring a disproportionate amount of public interest?
Durand concedes that Remgro’s image could be badly hurt if it doesn’t get it right.
“There might be some reputational damage, absolutely.”
That is why whatever management time Remgro devotes to it will be justified, he says.
“Because from a reputational side it’s important we get this right.”
The main sources of income for WP Rugby are ticket sales, TV rights and sponsorship.
This means Remgro’s priority will be to improve the performance of the Stormers and Western Province rugby sides, which have been playing to a half-full Newlands stadium.
“Obviously we need to fill the stadium, we need to sell more tickets. What sells more tickets is a winning team.”
Given their dull and ineffectual performances of late, this won’t be plain sailing.
He says Remgro will do what it did at English rugby club Saracens, of which it owns 50%.
“It’s about getting closely involved, appointing the right coaches and so forth.”
When it took over Saracens in 2009 the team hadn’t won a premiership or a European cup. Since then it’s won three premiership titles and last year the double.
Will Remgro influence the selection of a coach?
“We’re going to look at everything. The bottom line is you support your brand by having a winning team.”
Will the company have the courage to appoint the right coach no matter the resistance, the politics or where he is from?
“I think you can say we’ve had the courage to invest in WP Rugby and come to their rescue, so hopefully we can do that.”
He loves the All Black style of “total rugby”, he says. But there has been strong resistance to hiring an All Black coach.
Would he hire an All Black coach?
“I don’t mind a foreign coach at all.
“The bottom line is if you invest in a brand, it needs to be very cash-flow-generative.”
One of the biggest and most emotive issues is the future of the iconic Newlands rugby stadium. Opinion is sharply divided about whether the more fan-friendly Cape Town stadium in Green Point, built for the 2010 Soccer World Cup and an expensive white elephant ever since, would draw larger crowds. Will Remgro sell it? “Newlands belongs to the Western Province Rugby Union so they must decide. Our influence over what happens there is not so great, actually. They control it 100%. They might listen to us, but at the end of the day it’s their asset.”
However, the future of Newlands “will obviously be looked at when we look at the business plan. What is the best way to make the company viable?”
If Remgro’s decision to take over WP Rugby has raised eyebrows, so too — even more so, perhaps — has its decision not to buy the old SABMiller stake in Distell after completing a R9 billion rights issue supposedly for that purpose. Instead, the Public Investment Corporation snapped it up.
The possibility of using money from the rights issue to buy SABMiller’s stake, which had to be sold as part of the AB InBev deal, was mentioned specifically in the circular accompanying the rights issue. So what changed? “I said right from the start we will only buy that stake on the right commercial terms. At the right price. We didn’t think it was the right price to pay for that.” So the PIC overpaid? “They might have different ideas but in my opinion it was more than we were willing to pay.”
He accepts that some Remgro shareholders may be disappointed, puzzled and even angry. “The thing about it is if you pay too much for a stake, you never make a return on it. You must never pay too much for something.”
Isn’t Remgro ignoring this rule in the case of its investment in WP Rugby?
“We’re not buying an asset there, we’re just rescuing something,” he says.
There is an argument that the sale of the old SABMiller stake in Distell will unlock the control structure and lead to a much stronger earnings flow, which Remgro, having long had a significant stake in the drinks maker, will now miss out on.
Durand says that the control structure never impeded the growth of Distell. “SAB never had board seats so the company never had that kind of influence over the control structure.”
He says the cash from the rights offer could be used to reduce debt on the Remgro balance sheet from Mediclinic, its broadband infrastructure arm Dark Fibre Africa, and RCL Foods.
The acquisition of Al Noor Hospitals Group by Mediclinic has been more expensive, with lower returns than planned as a result of unforeseen regulatory changes in its Abu Dhabi market, he says.
But of more concern is regulatory uncertainty in South Africa, because it has a political element.
He says the government should concentrate on fixing the public healthcare system rather than focus on the private healthcare industry, which is world class and “pays a hell of a lot of taxes”.
“It should rather concentrate on the things that are not working.”
However, he does not see the government as a threat to private healthcare, if only by default.
“I don’t think the government can afford to try to wreck the private healthcare industry.”
The greatest threat to Remgro’s local investments is South Africa’s “abysmal economic growth story”, which he believes is driven largely by politics.
“This year nothing is going to get done. Everybody’s going to have this obsession with the succession battle and what is happening with the ANC. No proper long-term economic decisions will be made this year I think.”
He finds it a “very scary” thought.
The best hope in the long term is to be in industries that are cash generative and as minimally exposed to government regulations as possible, he says.
Or just go and watch the Stormers. Either way, “interesting times” lie ahead.
WP Rugby made good money in the past — there’s no reason it can’t again If you pay too much for a stake you never make a return on it. Never pay too much I don’t think the government can afford to try to wreck private healthcare