PnP faces cash crisis
RETAILER ANNOUNCES R4BN RIGHTS OFFERS, LISTS BOXER
Its R7.2bn debt remains high for a group that will report a loss for the full year.
In the end, there are many more similarities to the situations faced by Transaction Capital and Pick n Pay than one would think. Their market capitalisations aren’t that dissimilar, at R7 billion and R11 billion, respectively. Both are trading far off their 52-week highs and both have a desperate need for cash.
The solution to both their predicaments? Unbundle and list the prized asset in the business on the JSE – while retaining a majority stake – to raise capital.
For Transaction Capital, it’s WeBuyCars and for Pick n Pay, it’s Boxer.
However, Pick n Pay requires significantly more cash than Transaction Capital (which will only raise about R1 billion through that unbundling).
The retailer’s net debt is at R7.2 billion – nearly double the R3.8 billion as at end-August. This improved in February, but it still remains too high, especially for a group that will report a loss for the full year to end-February.
To remedy this, the group hopes to raise (up to) R4 billion in a rights offer in the middle of the year. This will be followed by the Boxer listing in the latter half of this year.
As the controlling shareholder, the Ackerman family has “indicated its in-principle support for this… plan”. It has a big decision to make – either its bankers will need to stump up R1 billion (it owns 25% of the ordinary shares), or they will be diluted.
The big question
The billion-rand question is, how much money will Pick n Pay be able to raise from listing Boxer?
The latter does about a third of the sales of Pick n Pay, but it is growing fast and the Pick n Pay business isn’t.
In the first six months of this financial year, Pick n Pay reported revenue of R34.6 billion in SA versus Boxer’s R17.4 billion. The group has made it clear that Boxer is “highly” profitable.
The market says the group is worth R10.7 billion. Could Boxer be worth R4 billion by itself?
The market is discounting a fair amount of value in the core business, which makes staying invested an option, (at a discount), betting on CEO Sean Summers and the team being able to turn it around.
Summers – and the Ackermans
– obviously don’t want to leave any money on the table. The group needs to extract the best possible valuation when it is listed. Could it raise R1 billion from the sale of say, a 25% stake in Boxer?
Language is telling
The language used in Thursday’s announcement of the listing of Boxer is telling.
It now contends that it bulleted Pieter Boone and appointed Summers in October “to urgently
address the underperformance of the Pick n Pay supermarkets business and to assess ways in which the group could unlock value for shareholders from Pick n Pay’s broader business”.
This may well have been the case six months ago, but the word “unlock” doesn’t appear in the announcement of Summers’ appointment.
In Thursday’s announcement, it referred specifically to “unlocking value” four separate times.
Why is it trying to paint the listing of Boxer as part of a grand plan to unlock the billions of rand of “trapped” value in the group?
It is the same reason that Transaction Capital is spinning a similar yarn.
A fire sale at exactly the wrong point in the interest rate cycle isn’t exactly the best sales pitch to investors.