Windfall for Wiese but slim pickings for minorities if Pepkor delists
Retailer Pepkor announced on Thursday last week that it had received a takeover offer of R10 per share, valuing the group at R2.1 billion, that, if implemented, would see the group delist from the JSE Securities Exchange.
Pepkor, which owns Pep Stores, Ackermans and Best & Less in Australia, has had a strong following among individual and institutional shareholders, who have been patient with the group during years of poor performance and costly restructuring. Just as the recovery corner has been successfully negotiated, a surreptitious scheme has been conjured up to jettison the long-suffering minorities at what appears to be a humiliatingly low price. The offer has been made by Newco and is underwritten by Brait and Old Mutual. Newco will have three other shareholders - Pepkor management, an empowerment partner and Pepkor shareholder Christo Wiese.
The share has performed relatively well over the past year, rising from R4 last August to the current R9.90. With Pepkor performing significantly better at the operating level, investors were expecting further price appreciation to come.
There is certainly one investor that the proposed deal suits very well indeed. This is none other than the controlling shareholder - Wiese. Pepkor's latest annual report reveals that he owns 47 million-odd shares for which he will receive about 28.7 million shares in Newco. Added to this, Wiese will receive R33 million in cash and 33 million additional Newco shares for his holding of 91.9 million non-convertible, non-participating, non-transferable redeemable no par value preference shares. This is a handsome reward for an investment (in the preference shares) that, according to the annual report, cost a paltry R92 000.
From information provided in the annual report, the preference shares are not convertible into shares of any other class, are not entitled to participate in profits or dividends, but are entitled to a vote at any company meeting. The preference shares are redeemable in relation to the extent that the shareholder disposes of his interest in the ordinary shares of the company. All issued preference shares are fully redeemable should the shareholder's interest in the ordinary shares become less than 10 percent. The preference shareholder will receive R33.3 million in cash in respect of the loss of voting rights and Newco will issue 33.3 million shares to discharge the preference consideration. Wiese will ultimately have a stake of about 33 percent in Newco.
The Pepkor deal has caused consternation in the market, but whether the disquiet will translate into concrete action by minority shareholders attempting to defeat the buyout remains to be seen. A defeat of the resolutions to be put to a general meeting later this year will depend upon institutional discontent with the deal and concerted opposition to it. With the renewed interest in corporate governance, the Shareholders' Association sincerely trusts that the institutions will weigh up the terms of the deal and reject it if it is not deemed to be in the interest of the beneficial owners.
Another important consideration is that institutional investors are not permitted to hold shares in unlisted companies, so they are precluded from accepting the shares in Newco and are therefore forced to relinquish their holding in Newco.
Wiese was quoted this week as saying: "Shareholders should be aware that an unlisted company had more risk and that they would not receive dividends until borrowings were repaid, which might take three or four years, or longer depending on its expansion." This is patronising and trite as minority shareholders are well aware that they are not in Wiese's league.
Wiese gave minority shareholders a huge reason for rejecting the offer out of hand by saying: "I cannot say that the share price will not be R20 or R30 in three years' time. That is what we are all working for."