Shoprite buyout could happen

27 November, 2006 at 10:51 am | Posted in Companies | Leave a comment

Shoprite Holdings chairman Christo Wiese may be able to pull off South Africa’s largest private equity deal with as little as 6.7 percent support from outside shareholders.
This is despite the fact that outside public shareholders hold more than 77 percent of the supermarket group, according to Shoprite’s 2006 annual report.

Wiese may be able to achieve the corporate coup because apart from the effective 15.4 percent in ordinary shares he holds, valued at R2.34 billion on Friday, the billionaire owns as much as 27.9 percent in voting shares, which hold no value.

With irrevocable support of 2.8 percent from Old Mutual Life Assurance Company, a portion of the Public Investment Corporation holding – 2.7 percent – and his own total voting rights of an effective 43.3 percent, Wiese already has 48.8 percent of the votes sewn up.

This will leave him only 1.2 percent shy of the 50 percent plus one share he needs to secure the deal that could see Shoprite being acquired by Brait Private Equity, Old Mutual, himself and management for R13.19 billion, a discount of as much as R2.03 billion to Friday’s closing market value of R15.22 billion.

To date, the country’s largest private equity deal was the R5.4 billion buyout of equipment maker Waco International, far short of last week’s record US deal to sell Equity Office Properties for $36 billion (R260 billion) as a frenzy of private deals swept across the globe.

On Friday the Shoprite board approved the complex buyout that could see Wiese raising his stake in the business, theoretically as high as 30 percent, depending on how many existing shareholders take up a limited offer for shares in the new business.

Shareholders have yet to vote on the deal, which includes R3.69 billion in equity and a balance of R9.5 billion capitalised with debt, including more than half in offshore borrowing. Analysts and investors described the R26 a share offer to shareholders as low, saying the company was in a sweet spot, having recently grown its domestic market share and with its African supermarkets about to take off. But Brait executive director John Gnodde said Absa Bank had independently valued the company and found R25.50 a share and above to be favourable.

On Friday the share closed 1.82 percent higher at R28, indicating that investors, who were eagerly
awaiting the announcement, expected more. But minutes after the market closed, investors received
the news that the offer was R26.

Quinton Ivan, an investment analyst at Coronation Fund Managers, which controls about 3 percent of Shoprite, described the structuring of the deal as “shrewd”, but said he thought the company was worth as much as R30 a share.

Ivan said that while executive directors and management, as interested parties, would not be able to vote on the 50 percent plus required to delist the company, it appeared that Wiese, as a nonexecutive
chairman, would be able to vote. “I pretty much think it is a done deal.”

Ivan said the chances of stopping it appeared minimal, adding that he thought the buyers would easily get the additional 1.2 percent needed to secure approval of 50 percent plus one.

Renaissance Asset Management head of research Nothando Ndebele said she was “very disappointed in the offer” and would vote against it.

She added that if Wiese was allowed to vote, she was not sure whether shareholders would be able to do anything about it.

Investec Asset Management head of industrials Rob Forsyth said it was possible that disgruntled shareholders might appeal Wiese’s right to vote to the Securities Regulation Panel.

The food and drug retailers sector rose 1.86 percent on Friday.



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