Rain on the parade
Something had to give at Grand Parade Investments (GPI), with shareholders increasingly frustrated at the board’s apparent inability to close the gaping discount the share offers on intrinsic NAV. Consequently, it’s no huge surprise that GPI, which has a few boutique investment firms and well-heeled individuals on the share register, last week received a demand to call a general meeting of shareholders.
The Sens announcement by GPI betrays some hostility in its observation that the demand came from parties “purporting to be agents” of beneficial shareholders holding 12.6% of the voting rights of the company.
There is admittedly nothing diplomatic about these shareholders’ demands that all GPI’S nonexecutive directors be removed. The plan is then for shareholders to re-elect four nonexecutive directors from among the “removed directors” and from four individuals nominated as new nonexecutive directors. The new nonexecutives will presumably be tasked with keeping close tabs on long-serving and combative executive director Hassen Adams.
Overall, GPI’S prospects hinge heavily on its rollout of Burger King in SA. But there’s been more focus on how to unlock the official NAV of more than 600c a share (or an unofficial 350c a share for the more cynically minded).
The main store of value is locked up in significant minority stakes in three gaming entities — Grandwest Casino in Cape Town, Golden Valley Casino in Worcester and the Sun Slots limitedpayout machine business. There is also a valuable property in the Cape Town CBD that was briefly put up for sale this year. These assets have generated cash flows and served as security to access capital for the Burger King rollout.
A restructuring of GPI’S portfolio would unlock value fairly rapidly.
News of the shareholder revolt has already sparked the GPI share price — though there are indications the board will not simply accede to the demands.
GPI is making a meal of verifying whether the call for a meeting is valid by determining if the representatives are really “agents” of beneficial shareholders that hold at least 10% of GPI’S voting rights. It is also in the process of determining if the proposed new directors comply with the probity requirements imposed by gambling authorities. There may be prolonged confrontation.
Quantum of solace
It would seem shareholders flocked to take advantage of the tender offer by agribusiness group Quantum Foods.
I thought Quantum’s paltry market rating — coupled with the prospect of a large dividend after a stronger performance from the poultry and egg businesses — might have resulted in some resistance to letting go of scrip.
No details breaking down the results of the offer were given, other than that the 5% (4.9999% actually) target or 11million shares that Quantum coveted in the tender were duly offered up. But assuming that anchor shareholder Zeder Investments probably did not sell shares, it seems safe to guess more than a few minority shareholders took advantage of the option to tender more than the basic entitlement of nearly 5%.
The pitch price was 447c a share on a gross basis, and 358c a share on a net payment. On a trailing earnings multiple of between three and four, Quantum will never be accused of taking too much risk in capital allocation.
That’s R50m well spent by Quantum, at a time when even the most optimistic shareholders will concede that the company — especially the egg business — has enjoyed a purple patch.
If the share price dips as the company’s performance normalises, shareholders will take some encouragement from tendering some scrip. If earnings do beat expectations, the flow through to the bottom line will be all the stronger with fewer shares in issue.
The only drawback to cutting loose a portion of scrip is if the year to endseptember results are garnished with a fat special dividend.
There is admittedly nothing diplomatic about these shareholders’ demands that all GPI’S nonexecutive directors be removed