An intriguing move

Investment behemoth Remgro has fortified its stake in Distell, the producer of intoxicating brands such as Savanna, Hunter’s, Nederburg, Klipdrift and Amarula, to mention just a few. This has been done indirectly via Capevin Investments, the holding company that has a 26.77% stake in Distell as its only investment.

Capevin’s share register for May shows that Remgro increased its shareholding from about 137m shares to almost 168m. This means Remgro’s stake in Capevin extends to 19% (from 15.6% previously), and by inference its stake in Distell moves through the

32% mark. It’s a most intriguing move. Readers will remember that late last year Remgro appeared to have been outbid by the Public Investment Corp (PIC) for the large shareholding that AB Inbev inherited in the Sabmiller takeover. Remgro, which had a preemptive right over Sabmiller’s 26.4% stake in Distell, was largely expected to take up the shareholding and gain outright control of the liquor conglomerate. No details of the AB INBEV/PIC deal were disclosed, but market watchers have suggested that the PIC paid a stiff premium (perhaps north of R170/share) for the Distell shareholding. Clearly Remgro, notoriously conservative in its deal-making endeavours (though Mediclinic International shareholders might disagree), was disinclined to offer a large premium. This despite the Stellenbosch-based group having on numerous occasions indicated that Sabmiller’s holding in Distell was a coveted strategic stake.

But, with hindsight, Remgro might be making up for any disappointment at having its ambitions at Distell diluted by the PIC. At the time of deliberations between AB Inbev and the PIC, the Distell share price was more than R150. The Distell share price drifted down to a 12-month low of R132 in May — which is about the time Remgro smartly snapped up its extra shareholding.

With Distell shares back at more than R150, Remgro must be heartily toasting its endeavours. But what is Remgro’s longer-term plan for Distell? Remgro is already fairly close to breaching shareholding levels that would trigger a mandatory offer to minority shareholders. After a recent rights issue, it certainly has the capacity to buy out Distell.

Logical simplification

I suspect the next development in the Distell saga will be the (long overdue) dismantling of the archaic Capevin pyramid holding structure. At the time of writing, the discount offered by Capevin — in which, incidentally, the PIC has a

12% stake — on its shareholding in Distell was about 14%. The discount has been narrower, but I still think Capevin will be dismantled sooner rather than later, and possibly before the end of this year.

This, I presume, can be done by simply unbundling the Distell shares to Capevin shareholders. What has previously been cited as the biggest impediment to dismantling Capevin are legacy agreements purportedly around distribution licences for gin (and possibly other spirits). These stipulated that the Remgrocapevin partnership — which effectively holds 52.8% of Distell — had to remain in place. No figures are to hand, but I can’t imagine gin sales represent a huge dollop of Distell’s sales — at least not enough to retard a logical simplification in the corporate ownership structure.

Then, again, I was surprised to see recent statistics from the liquor industry showing the growth in gin consumption over the past five years comfortably outstripped those of the other main growth categories (brandy and vodka). Admittedly this feat is off a low base (5.4m l/year), but it is probably a manifestation of new craft gins in SA rather than any pith-helmeted colonial throwback.

So could this rising gin trend perhaps see the Remgro-capevin agreement prolonged?

Maybe it will actually hasten the dismantling of Capevin if the rise of the craft gin market means Distell has no qualms about giving up the “old” gin brands and pouring its efforts into premium-priced offerings that can enhance margins and bolster international sales.

I still think Capevin will be dismantled sooner rather than later, and possibly before the end of this year