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PSG shareholders likely to approve unbundling scheme despite being disgruntled

PSG, the investment group, said yesterday it had received the necessary regulatory approvals for the scheme and was proceeding with its meeting of shareholders next Wednesday, to vote and approve the deal.

PSG, the investment group, said yesterday it had received the necessary regulatory approvals for the scheme and was proceeding with its meeting of shareholders next Wednesday, to vote and approve the deal.

Published Aug 4, 2022

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It is promising to be a humdinger of a general meeting for PSG on Wednesday when a large number of disgruntled shareholders vote on the group’s unbundling scheme.

PSG, the investment group, said yesterday it had received the necessary regulatory approvals for the scheme and was proceeding with its meeting of shareholders next Wednesday, to vote and approve the deal.

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Southern Cross Capital portfolio manager Cobus Potgieter said on a CNBC Africa television programme Tuesday he believed that most minority shareholders were opposed to the scheme, but PSG’s “gun-to-the-head, take-it-or-leave-it approach” meant they would likely approve the unbundling, rather than stay with an increasingly “rent-seeking” management who seemed intent on diluting minority shareholders’ interests.

PSG has consistently said that it believes most shareholders approve of the scheme.

Anthony Clark, independent analyst at Small Talk Daily Research and PSG shareholder, said he too did not believe PSG were making a fair offer to minorities, and he had heard that many other of PSG’s institutional shareholders shared similar sentiments, and that a better cash offer of R25 to R25.50 per share might appease these shareholders.

He said the unbundling announcement had been particularly timeous from the point of view of PSG management and major shareholder, as PSG collected some R1 billion of dividends after that, which was not included in the offer to minorities, and even though PSG’s management had denied this.

Clark said some institutional shareholders might nevertheless accept the scheme offer as the underlying investments would likely recover, and this would be better than the likely collapse of PSG’s shares price if the unbundling did not proceed, and then having to deal with the “very palpable disdain for the JSE and its investors” by PSG management, that had been evident in the past few years, as the discount to net asset value widened because PSG had underperformed its peers.

PSG first announced in March its plans to unbundle its stakes in financial advisory firm PSG Konsult, independent schools group Curro, agriculture services group Kaap Agri, fast-moving consumer goods services company CA Sales Holdings (CA&S), and tertiary education company Stadio. The company had already unbundled its shareholding in Capitec in 2021.

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PSG, which has the Mouton family as its major shareholder, aims to additionally pay shareholders R23 per share for their shares in PSG Group as part of the unbundling, a price may reduce should there be an increase in 12.9 percent shareholding of disqualified persons.

These persons are the executive management of PSG Group, PSG Alpha Investments, and the PSG founders and their immediate family members, who will remain invested in the group after it delists.

Potgieter said the unbundling offer to minorities amounted to a significant discount, upwards of about R2.3 billion, to the sum of the parts valuation of PSG, a valuation that was made by PSG’s very own management.

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He said that making the whole deal even more of a “fleecing” was that the value that PSG was affording to minorities was after a R15 million payment for costs to PSG Capital, which would go to the Mouton family after the unbundling and which represented a high cost relative to the work done.

In addition, the offer was after the payment of a severance fee to PSG’s executives equivalent to 43 cents per PSG share, which Potgieter said was “very generous” and questionable considering these executives were already paid “very generous packages to do their job”, and even though they had done very little active management in the group’s investments.

In addition, given the discount that the share price had traded at to the sum of the parts value over the past few years, management did not appear to have done their job particularly well either, raising further questions about the need for this severance pay, said Clark.

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PSG’s share price traded 0.34 percent higher at R86.02 yesterday morning, with the price broadly in line with the R89.92 that it traded at on January 3, at the start of the year and before the unbundling announcement.

A condition of the unbundling was that disqualified persons will not be allowed to hold more than an additional 10 percent of the shares in PSG Group 10 days after the general meeting, failing which, or the waiver of this condition by PSG Group, the restructuring will not proceed.

PSG said it expected that the scheme consideration would not be adjusted, but the final value would depend on the level of disqualified person shareholders at the record date of the unbundling. The final value would be announced on September 16.

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