Ghost Bites (British American Tobacco | MC Mining | Pan African Resources | Sanlam | Vodacom)

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British American Tobacco settles with Philip Morris (JSE: BTI)

No money is changing hands under this agreement

British American Tobacco and Philip Morris have been battling it out over intellectual property disputes relating to the cigarette alternative products. These are key growth areas for the businesses – and the source of halfway decent ESG ratings.

The companies have now agreed to a settlement that puts literally everything to bed, including future claims against current products. Each party is allowed to innovate and introduce new product interations.

The amount changing hands? Zero. Nada. Niks. The fight was so damaging for both sides that there is no clear winner here.

In the official announcement relating to the settlement, British American Tobacco reminded the market that Vuse and glo are each £1 billion brands. There’s a valuable pie to fight over here, especially as these products become more profitable in years to come (provided all goes to plan). The parties have clearly decided to just move on now and focus on their respective businesses.

MC Mining has received the bidder’s statement (JSE: MCZ)

The recommendation at this stage is still to take no action

MC Mining has been waiting for the consortium of joint bidders (including Senosi Group and Dendocept – with all parties holding a combined 64.3% of shares in issue) to lodge a bidder’s statement in line with Australian takeover laws.

This has finally happened, so the independent board must now move ahead and consider the terms of the statement. The next step is that the board responds with a target statement that will include an independent expert report and the independent board’s recommendation regarding the bid.

Until then, shareholders have been told to take no action in relation to the bid.

The price is A$0.16 per share, which works out to around R1.97 at current exchange rates. The share price closed 20% higher at R1.80.

A shiny jump in earnings at Pan African Resources (JSE: PAN)

HEPS has jumped sharply – and that’s in US dollars

Pan African Resources has been on the receiving end of a gold price that increased 13.7% in dollars in the six months to December 2023 vs. the comparable period. Volumes of gold sold increased by 8.9%. Even before you take advantage of the weak rand, this combination is going to tell a good story for US dollar results.

Indeed, HEPS will increase for the period by between 41% and 51% in US dollars – the company’s reporting currency. The average exchange rate was 7.8% weaker for the period, so rand results would’ve been even better.

This is why the share price is up around 24% in the past 12 months.

A busy day of M&A news for Sanlam (JSE: SLM)

Assupol is the big news, with a deal in Morocco as well

I’ll start with the most important news, which is that Sanlam (acting through Sanlam Life) is making an offer for Assupol. If you go back to April 2023, two major shareholders of Assupol (Budvest with 46.11% and the International Finance Corporation with 19.36%) noted an intention to commence a sale process. Sanlam is now providing that exit and wants the rest of the company as well, hence this is being structured as a scheme of arrangement (a desire to get a 100% stake) with a standby offer as well.

This is an unusual structure, as it means that Sanlam is happy to get a piece of the pie at this price even if it can’t get the whole thing. For the standby offer to become applicable though, holders of at least 65% of shares in issue would need to accept it. At the moment, irrevocable undertakings are in place for holders of 69.81% of the shares, so it looks like the scheme is likely to go ahead anyway as they are very close to the required approval rate for a scheme. If the scheme somehow fails, the standby offer is on track unless an irrevocable undertaking is pulled.

Assupol is currently listed on the Cape Town Stock Exchange with a market cap just below R5 billion before this offer was made. The embedded value (an important metric for life insurers) is R7.07 billion. Sanlam sees Assupol as a strategic fit in the Retail Mass segment, particularly given Assupol’s strong customer base in Gauteng.

The price for the deal is quite a complex calculation, thanks to the existence of the B shares among other issues. Based on the assumed implementation date, it works out to R15.23 per share. This is a 32.17% premium to the closing price of the shares on the day before the offer was made. The offer works out to R6.5 billion in total, so that’s a lot closer to the embedded value in the business. An independent expert has opined that the scheme price is fair and reasonable to shareholders.

There must be some long faces at the Cape Town Stock Exchange. They don’t exactly have many listings and now one of the most important ones is set to disappear.

In much smaller (but still interesting) news, the formation of the SanlamAllianz Africa joint venture triggered a mandatory offer in Morocco for Sanlam Maroc. It seems as though shareholders were very happy with that outcome, as holders of a sizable 23.86% of shares in issue said yes to the offer.

The total price was R2.43 billion, funded by Sanlam Emerging Markets and Allianz Europe in line with their respective 60% and 40% shareholdings in SanlamAllianz. This increases the stake held by SanlamAllianz in the Moroccan business from 61.73% to 85.59%.

Vodacom now has 200 million group customers (JSE: VOD)

The deal for Vodafone Egypt has made the group substantially larger

When companies want to grow, they can either do it the slow way (organic growth) or the fast way (acquisitions). Now, getting bigger overall doesn’t mean that shareholders are any better off. If you acquire businesses in exchange for shares, then the number of shares in issue keeps going up. When wearing an investor hat, you always have to keep this in mind when looking at companies that have grown significantly through deals.

Vodacom now services 200 million customers across the group and is obviously making a big deal of this fact, with 75 million of those customers using a financial service. Revenue from “new services” – which includes financial and digital services – is targeted to reach 25% to 30% of revenue over the medium term. The contribution exceeded 20% this quarter for the first time. Mobile money is the cornerstone of this part of the business.

For the quarter ended December 2023, Vodacom’s group revenue grew 26.8% year-on-year. If you dig deeper, you’ll find that South Africa grew by 4.0% and International (which excludes Egypt) was good for 12.6%. This means that the bulk of the exciting growth came from the acquisition of Egypt.

The group reports a group normalised number for service revenue specifically. Without the normalisation, it increased by 29.7%. With the adjustment for the Egypt deal, it grew by 8.8% with Egypt and 3.2% without Egypt. So even when adjusting for the change in shareholding, the growth really is coming from Egypt. That business grew service revenue by 29.1% in local currency and there were 55.5% more financial services customers, so those are impressive numbers.

Little Bites

• Director dealings:
  • An executive director of Argent Industrial (JSE: ART) has sold shares worth R1.5 million.
  • Sean Riskowitz has bought another R232k worth of shares in Finbond (JSE: FGL), acting through Protea Asset Management.

• Life Healthcare (JSE: LHC) has completed the sale of Alliance Medical Group, receiving £845.9 million in the process. Net proceeds of R10.5 billion have been repatriated to South Africa after the settlement of international debt. The majority of these proceeds will be returned to shareholders – but we don’t know how much just yet.

• BDO has opined that the Dis-Chem (JSE: DCP) related party transaction regarding the acquisition of the Midrand head office and distribution centre is fair to shareholders. Such an opinion is a requirement for a related party transaction.

• Willem Britz has stepped down as a non-executive director at AfroCentric (JSE: ACT), having been on the board since 2015. He was one of the founders of Pharmacy Direct, a business that AfroCentric acquired.

• AYO Technology (JSE: AYO) has renewed the cautionary announcement related to finalising the terms of the settlement agreement with the GEPF and PIC. There has been extensive engagement with the JSE to ensure compliance with listings requirements. The parties previously agreed to extend the long stop date for this to 30 June 2024.

• Creating perhaps more questions than answers in the process, Grindrod (JSE: GND) alerted the market to announcements by Martius Limited and Redink Rentals Limited regarding an event of default. These companies are funders of Mokoro Holding Company, in which Grindrod has a 35.07% equity interest in the non-core private equity portfolio. Grindrod is not a guarantor on the funding arrangements but is considering the impact on the fair value of the investment. I suspect that this is very small in the grand scheme of things at Grindrod.

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