A bright idea?
Have the chaps at profitable and well-managed electronics group ARB Holdings gone mad? I had to re-read a cautionary announcement several times to confirm that ARB, which controls the highly profitable Eurolux lighting business, is in advanced negotiations to acquire Radiant Lighting from the beleaguered South Ocean Holdings (SOH).
A friend in the lighting industry called the deal a few weeks back, but I suspected he had got his wires crossed. ARB is a smart operator that has been prudent with its capital allocation since listing more than 10 years ago. Surely there must be better opportunities to pursue than Radiant, which has managed shocking performances over the past decade and appears to be the very antithesis of ARB’S Eurolux?
Like Eurolux, Radiant imports and distributes light fittings, lamps and electrical accessories to the housing, infrastructure, building and construction sectors. It’s a simple enough business, but the scorecard will show that Eurolux’s profit performance leaves Radiant in the dark. In the year to end-december, Radiant dropped its turnover almost 12% and increased its losses to R34m.
SOH paid R485m for Radiant in 2007, a figure that is nearly five times the value of the group’s current market capitalisation.
If the proposed transaction does materialise, I will be keen to see the terms of the deal (which includes Radiant’s properties). I cannot imagine ARB, which seems to have sufficient organic growth opportunities for Eurolux, paying anything but a bargain purchase price for what I guess would effectively be Radiant’s market share.
SOH is not in a position to play hardball, with Radiant having cost the group plenty in the past few years.
The more things change
Shareholders in cash-flush industrial services business Howden Africa will be pondering, rather carefully, the group’s latest Sens announcement about key executive changes.
CEO William Thomson will have his contract extended until January next year. That’s probably not good news for shareholders hoping that Howden’s board will finally decide to pay over a chunk of its swelling cash pile in the form of a dividend. But Howden also announced that Eric Vemer, former
CEO of construction giant Group Five, will be appointed an executive director from mid-september with a view to him taking over from Thomson towards the end of 2019.
Shareholders may hope that Vemer has his own views on Howden’s controversial tactic of hoarding its free cash flows in lieu of a potential, but so far elusive, deal.
Point of departure
The sudden resignation of Johan Botes as CEO of Torre last month would have further chipped away at the already brittle sentiment for the industrial supplies business. But news that Torre — which trades at a substantial discount to its intrinsic value — will delist from the JSE to execute a more meaningful empowerment arrangement certainly got punters in a funk.
At the time of writing Torre was up more than 35% to about 99c. Initial indications are that Torre intends pitching a buyout offer of 130c/share — a figure that might appeal to a good number of long-suffering minority shareholders.
The big question is whether major shareholder Stellar Capital Partners (SCP) will be selling out of Torre. SCP, which is in the throes of its own portfolio restructuring, has already indicated a willingness to shed its industrial investments.
The other major shareholder in Torre is Chris Seabrooke’s investment company Sabvest, which — as a patient value investor — might be less inclined to exit the company.
Torre has not managed a spectacular turnaround, but the business looks lean and capable of churning out good profits in select niches.
There must be better opportunities to pursue than Radiant, which has managed shocking performances over the past decade