Theoriously

Investors could scribble blackboards full of permutations as to how a Curro-AdvTech deal might be structured

The initial sense of disbelief around a shake-up in the private education sector, where PSG-controlled upstart Curro is tilting at taking over the measured (and mild mannered) AdvTech, has given way to intrigue. This might eventually turn into one of the biggest hostile takeovers on the JSE in recent years. AdvTech this week officially fobbed off Curro’s advance, but it’s significant that Curro has not retracted its cautionary notice.

I hear Curro had a sympathetic ear from a sizeable chunk of AdvTech’s shareholders, which leads me to believe that a deal may still be dragged back to the boardroom table.

The market, which is usually well informed, was inferring a buyout value of at least R6bn on AdvTech.

Snapping up AdvTech would greatly enhance earnings (and cash flow) for fast-growing Curro. Last week I argued AdvTech’s interim trading update confirmed a strong medium-term growth upside.

But the critical question is whether Curro can really afford to stuff AdvTech into its satchel. Even with the adventurous PSG (which now has Steinhoff International as a 25% shareholder) firmly behind the audacious move, the market is getting into a bit of a tizz over how the deal will be structured and financed.

Of course, in pondering possible outcomes one has to presume that despite the AdvTech board resisting advances, Curro does have the support of major AdvTech shareholders Coronation Fund Managers and Kagiso Asset Managers. These large shareholders almost scuppered AdvTech’s Maravest acquisition recently, and seem to be at odds with the company’s executives.

If hostilities do ensure then market watchers could easily fill a few whiteboards with koki pen scrawls figuring out the permutations.

My educated guess would be that Curro proposes funding the deal with cash and scrip, banking on a good number of AdvTech shareholders opting for paper by virtue of wanting to stay invested in the vibrant private schools market (one of the few sweet spots in the local economy). The split between a cash and paper settlement could be crucial for Curro — and for parent company PSG. Curro, I