Unchain my heart, set me free
Unbundlings are a great way to unleash a company’s potential. The FM sets out its list of likely candidates
ý Unbundlings that result in new listings on the JSE, generally speaking, have been good for shareholders over the longer term.
No doubt that is what the recipients of shares in Thungela Resources, the thermal coal operations set to be unbundled by mining giant Anglo American, will be hoping.
Sure, changing investor values are key to the Anglo exercise, but the soon-to-be Thungela shareholders should have reason for optimism, at least if history is anything to go by.
Opportune Investments CEO Chris Logan, who has been involved in a fair share of value-enhancing unbundling exercises over the years, says emancipating companies from staid corporate structures has often been invigorating for management and shareholders.
“There could be many more unbundling opportunities on the JSE in the years ahead as shareholders press executives to unlock value and potential in promising subsidiaries.”
Logan points out that unbundlings on the JSE are following an international trend that has played out for a number of years, especially on US stock markets.
But they are not a new phenomenon — mature readers might remember the old Barlow Rand way back in the early 1990s unbundling Rand Mines, food group CG Smith (which later unbundled Illovo and its major holding in Tiger Brands) and electronics specialist Reunert.
While this did not create new listings, retail conglomerate Wooltru created three new JSE entities when it unbundled Truworths, Massmart and Woolworths in 2002.
Anglo American unbundled and separately listed its paper and pulp business Mondi in 2007, which went on to spin out packaging arm Mpact four years later.
In recent years we’ve had Old Mutual and UK-based Quilter; Trencor and Textainer; Bidvest and Bidcorp; Naspers and Prosus; MultiChoice and Novus; Investec and Ninety One; Grindrod and Grindrod Shipping; PSG and Capitec Bank; Tsogo Sun Gaming and Tsogo Sun Hotels; Curro and Stadio; and Altron and Bytes.
While unbundlings are usually aimed at unlocking value that might be chained up in cumbersome corporate structures, the exercise can also tweak operational performance for long-term profit gains.
Promising or even underperforming companies can be stifled in large corporate structures, and once emancipated, management is able to steer in the chosen strategic direction without restrictive or cautious oversight from the board of the parent firm.
An unbundling also offers fundraising flexibility with a company able to turn to its “new” shareholders in rights issues or shares-for-cash issues.
Two excellent examples on the JSE of the value of unbundling are alternative energy group Montauk Renewables and Astral Foods.
Montauk was buried inside investment company Hosken Consolidated Investments (HCI), and it would be fair to say that before the unbundling investors accorded this US-based subsidiary no significant value.
In fact, when Montauk was separately listed in 2014 the share traded as low as 200c. Since then Montauk has built up a compelling niche with its energy plants on landfill sites, and — with significant profits under its belt — was recently listed on the Nasdaq.
At listing in 2014 Montauk held a market value of barely R280m, but that figure is now close to R22bn. So Montauk has a market value four times the size of former parent HCI.
AT A BRISK CLIP
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While Astral Foods is not bigger than food conglomerate Tiger Brands, the poultry business has certainly outperformed its former parent company on the JSE.
But more importantly, Astral — as a standalone operation — has been a far more consistent performer than its main rival, Rainbow Chickens, which is still controlled by investment giant Remgro.
Astral is a lean, mean operation with CEO Chris Schutte determinedly driving costs down and efficiencies up. Astral, unlike the profitplucked Rainbow, has been able to ride out the vagaries of the poultry/feeds cycles and continue paying dividends.
Generally speaking, most unbundled companies do tend to outperform their former parents.
One only has to look at the old Iscor, whose unbundled mining segments Kumba and Exxaro have easily outperformed the steel core left in ArcelorMittal.
Other examples would include highly profitable vehicle tracking and fleet management group MiX Telematics, which easily outgrew its former parent, Control Instruments (subsequently delisted).
Logistics group Value — which has churned consistent profits and dividends since listing in the late 1990s — was spun out of investment company Vestacor, which otherwise endured only a short and unrewarding spell on the JSE.
Textainer has caught some strong tailwinds since being unbundled from Trencor in 2019.
Of course, it would be amiss to ignore the not so successful unbundlings. Aluminium group Hulamin (spun out from Tongaat Hulett in 2007) is battling its way out of the red.
Novus, the old Paarl media business spun out of Naspers, has struggled for profitable traction as it shifts from its publishing and printing core towards packaging.
Diamond group Trans
Hex — unbundled from Remgro — seemed to go from bad to worse until its recent delisting, and Total Client Services, which is currently suspended on the JSE, never made headway after being spun out of Labat Africa.
The FM reckons there are plenty more possibilities for listed groups to unlock value, reinvigorate management and reset the operational focus.
Here are a few:
Once emancipated, management is able to steer in the chosen direction without restrictive oversight from a parent company
ZEDER: This PSG-aligned agribusiness investor has a gem of an investment in seed business Zaad, which is reckoned to be worth more than R2bn. It would unlock substantial value by unbundling Zaad to Zeder shareholders, and taking the group to an international bourse (possibly Amsterdam) where it could also raise fresh capital once its credentials were established.
ALTRON: Having unlocked substantial value (perhaps more than R7bn) with the unbundling and listing of UK subsidiary Bytes, there has been a good deal of conjecture that Altron might do the same with vehicle tracking and fleet management business Netstar. Looking at the market ratings accorded to players such as MiX Telematics and Cartrack, such a move would make a lot of sense.
ADVTECH: With Value Capital Partners emerging as a significant minority shareholder in the private education business, there has been some speculation that the highly profitable tertiary education group might be spun out as a separate listing. Others may argue that AdvTech should look at unbundling its inconsistent human resources segment — but looking at the lowly ratings slapped on Primeserv and Workforce, the value-unlock potential seems limited.
AVI: Fishing group I&J sticks out like a sore thumb in AVI’s slick consumer brands portfolio. It would be tough to get an acceptable price for
I&J, despite some impressive profit performances of late, due to the uncertain tide that the fishing industry is drifting in. Unbundling could put some excellent fishing assets directly in the hands of AVI shareholders, though such a transaction might require first pulling a compelling empowerment shareholder aboard.
BRAIT: Provided debt-laden investment company Brait can unchoke its balance sheet, substantial value could be unlocked by unbundling the controlling stake in consumer brands group Premier. Brait, however, might want to fatten Premier up in certain categories before heading to the JSE.
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