As PSG Group released its “swansong” annual report, marking the end of an era, the JSE-listed entity could have a shareholder fight on its hands over its plan to unlock value in the group, which involves a share buyout.
The group, with a market cap of R19 billion, announced on March 1 it planned to unlock value for its shareholders via a restructuring plan that should be concluded by the end of August and subsequently delist from the JSE.
PSG Group was founded in November 1995 by Jannie Mouton and Chris Otto, with a dream of building a financial services conglomerate.
The annual report, released late on Wednesday, focused on PSG’s restructuring, which was done in light of the significant discount at which PSG Group has been trading to its Sum-of-the-Parts value in recent years.
PSG in a tribute to its incredible journey as a business, its top management, Mouton, chairman KK Combi, chief financial officer Wynand Greeff and executive Johan Holtzhausen, said, “Firstly, we want to thank our founders for their vision and our loyal shareholders for their continued support over the past 26 years. This laid the foundation for PSG Group to be built into a remarkable company that not only delivered superior returns for investors, but also made a significant positive contribution to South Africa.
“While we firmly believe that this course of action in the PSG Group journey is the right way forward, we cannot help but feel nostalgic about the delisting of a pioneering business that truly left an indelible mark on the South African business community,” the letter to its shareholders said.
The restructuring initiative entails unbundling the group’s shareholding in JSE-listed PSG Konsult, Curro, Kaap Agri, CA Sales Holdings, as well as 25.1 percent of the total issued shares in higher education and distance learning company Stadio.
It also involves a repurchase of PSG shares from shareholders for R23 a share, cash. The transaction would represent a 41 percent premium for shareholders, calculated on the share price of February 28, 2022, the day before the restructuring was first announced.
“PSG Group restructuring remains subject to the required shareholder and regulatory approvals being obtained, as well as the fulfilment or waiver of certain other conditions precedent,” it said in the report.
Anthony Clark, an independent analyst at Small Talk Daily, said yesterday, “The PSG original offer from March 1 did not include any of the subsequent billion of rands of dividends or some R4.30 a share. Whether PSG will stump up is anyone’s guess. They were very reluctant in my last engagement to pay a single cent more than R23, which leaves a lot of fat on the table.
With another billion rands suddenly hitting their bank account, they are now not just leaving the fat on the table, but the tablecloth, the candles and the silver. And at some point institutions will start to question the buyout and demand a bit more money,“ Clark said.
In Clarke’s Smalltalkdaily Research note, released last week, he said since the Project Value Unlock announcement and the R23 offer, PSG had received dividend inflows from its underlying investments totalling R953 million (gross), or R762m (net).
“This equates to R3.41 a share in cold hard cash that has hit the PSG books. Given that many shareholders believed the original R23.00 cash offer left a little too much fat on the PSG table, how will they now feel that an extra R3.41 has hit the PSG bank accounts post that offer being made?
“With the PSG circular due imminently, if I was a shareholder, I’d ask was the original R23.00 cash offer inclusive of pending dividend inflow (or) should PSG now consider increasing that offer given the riches that have flowed to its central coffers since March 1st,” he said.
However, PSG CEO Piet Mouton said yesterday, “We believe the offer is fair and reasonable and represents a 40 percent premium to where the share was trading prior to the deal being announced. The R23 payment to shareholders essentially comprises all PSG Group’s current surplus cash, which includes all dividends received subsequent to year end. PSG Group is, therefore, not able to pay more than R23 per share.
“Furthermore, regarding Mr Clark’s comment about leaving fat on the table, the reality is there is significantly more risk in the remaining portfolio of assets, given the size and growth stage of the companies.” he said.
With the latest issues at Eskom, the ongoing war in the Ukraine and rising inflation worldwide, the remaining portfolio should as a result also be worth much less, just like many listed companies’ valuations had reduced, Mouton added.
“Lastly, any potential risk of whatever nature associated with PSG Group as a result of the major restructurings undertaken will remain with the so-called remaining shareholders," he said.
PSG Group as unlisted investment holding company would also trade just like listed investment holding companies at 40 percent plus discounts to its intrinsic value.
“Post the R23 buyout, PSG Group will have limited cash resources and if it required cash going forward, it would need to raise capital at a significant discount, also taking into consideration that PSG Group’s gearing capacity would be extremely limited with the bulk of its portfolio not paying any dividends – not to mention that the unlisted PSG Group will no longer have the ability to access capital markets for raising equity,” he said.