Ghost Bites Vol 51 (22)

Corporate finance corner (M&A / capital raises)

• There’s news at Ascendis and it has nothing to do with Gary Shayne. He’s no longer on the board and his name is being utterly hammered by the investigative journalists at Daily Maverick, so Ascendis will be pleased to have seen the back of him. Instead, this update is about the potential sale of Ascendis Pharma to Austell Pharmaceuticals. As one of the many recent opportunistic lenders involved with Ascendis, Austell loaned R590 million to the company at JIBAR plus 4% plus another 3.5% for good measure. Another 2% gets added to this if shareholders approve the sale of Ascendis Pharma to a joint venture of Pharma-Q and Imperial Pharma, or if shareholders don’t approve a sale to Austell if that deal falls through. The price to Austell is R410 million, so that would get rid of most of the loan but not all of it. Ascendis Pharma made a net profit after tax for the six months to December 2021 of R22 million, so on an annualised basis this is a Price/Earnings multiple of 9.3x. The price for the Pharma-Q / Imperial Pharma deal is only R375 million, so shareholders would be leaving money on the table if they approved that deal. The corporate advisors look set to make money here, as two separate circulars will be sent to shareholders: one for the Pharma-Q / Imperial Pharma deal and one for Austell. Here’s a summary of the typical decision facing an Ascendis shareholder:

• Tongaat Hulett is trying desperately to pull its balance sheet in the right direction and survive its current crisis. The company asked the JSE to suspend its shares from trading. The JSE has decided to suspend trade from 20th July but notes that this isn’t because the company asked it to do so. Instead, the suspension is because the company hasn’t released its provisional results. This may sound like kids fighting in the sandpit but these decisions set an important precedent. The suspension won’t be lifted until Tongaat has caught up on financials, which is unlikely to happen until there is certainty around the balance sheet. If you’re a Tongaat shareholder, you should make yourself comfortable (if that’s possible), as you’ll be one for a while whether you like it or not.

• As part of PSG’s internal restructuring ahead of the much bigger deal that will see PSG leave the market, the group has sold down its Kaap Agri stake. It will hold 34.7% in the agriculture group at the time of the unbundling, assuming that transaction goes ahead. You can find the PSG circular at this link with all the information on the restructure.

• Fortress has distributed the circular to shareholders dealing with the proposal to repurchase all the A shares in consideration for the issue of 3.01281 B shares per A share. In simple terms, this means the REIT is getting rid of A shares and issuing more B shares instead, assuming all goes ahead. If it doesn’t go ahead, Fortress is likely to lose REIT status. EY was hired as independent expert and has opined on the terms as being fair and reasonable. You’ll find the circular at this link and they managed to keep it under 100 pages, so it’s a light read by regulatory standards.

• Astoria shareholders were reminded that the company is still in the process of finalising agreements for the intended acquisition of 25.1% in International Mining and Dredging Holdings for $5.5 million. The share price closed 14.7% higher, though a quick look at the share price chart makes it clear that the big move was a result of the bid-offer spread.

• African Equity Empowerment Investments and AYO Technology have jointly announced that they have agreed to acquire a business called Italian Summer. The entity through which the deal is being done is called SGT Solutions, owned 40% by AYO and 60% by AEEI. Italian Summer supplies power management and backup solutions for commercial and industrial applications, adding some romantic flair to everyone’s Eskom problems. The price is around R73.6 million based on a price/earnings multiple of 5.5x. Half of the amount is subject to earn-out payments, which is the right way to acquire private companies. In these structures, the sellers only receive all the cash once warranted profit after tax numbers are achieved after the deal. If those levels aren’t achieved, the earn-out is adjusted downwards based on a formula.

Financial updates

• Super Group has published a trading statement for the year ended June 2022, a period that was full of disruptions ranging from riots and the tail end of the pandemic through to load shedding. We all deserve a medal for getting through this. Super Group especially deserves a medal, with HEPS up between 29.6% and 43.7%. The guided range is 370 cents to 410 cents, which also compares favourably to the 373.8 cents achieved in 2019. Impressive stuff, all things considered!

• There was a pretty weird announcement from MTN clarifying tax remittances by MTN Nigeria for the 2021 fiscal year. Using the words “MTN Nigeria” and “tax” in the same sentence sends a shiver down the spine of any MTN shareholder. I’m not going to pretend to understand the intricacies of what is going on here, but MTN notes that MTN Nigeria is one of the most tax compliant organisations in Nigeria for the year 2021. Separately, the company announced a N200 billion bond issuance programme. This is a follow-on to the 2021 programme in which MTN Nigeria issued N100 billion worth of 13.00% 2028 bonds and N90 billion in 12.75% 2031 bonds. This gives you an idea of what long-term funding in Nigeria costs.

Operational updates

• BHP has released an operational review for the year ended June 2022. The update was headlined by the news of a fatality-free year and record sales volumes from Western Australia Iron Ore, allowing the group to fully capitalise on high prices. Full year guidance for iron ore and energy goal was achieved, along with revised guidance for copper and metallurgical coal. Nickel production missed guidance due to a smelter outage in the final quarter of the year. That quarter also saw the conclusion of major corporate actions, including the sale of 80% in BMC to Stanmore Resources for $1.1bn plus adjustments, as well as the merger of the oil and gas portfolio with Woodside Petroleum with a subsequent distribution of the shares to shareholders. Other than the usual operational matters, the executives are lying awake at night thinking about the Samarco dam disaster in 2015 which seems like it will play out in UK courts after a critical recent ruling against BHP. Of course, the company is appealing the ruling that allows a group action in the UK. Importantly, simply allowing an action to take place isn’t a ruling on the merits of the case.

• I couldn’t quite decide if this is a financial or operating update, but eventually I chose the latter. Aveng has announced that Australian subsidiary McConnell Dowell has been awarded an AUD600 million contract by the Tasmanian Department of State Growth for Tasmania’s largest-ever transport infrastructure project: the New Bridgewater Bridge. One would’ve hoped for a better name for such a momentous occasion. This takes the company’s current work in hand to around AUD3 billion. The bridge will include a shared pathway for cyclists and pedestrians, which is guaranteed to cause fights among people in clothes that fit too tightly. The share price only rallied 2% in response, which is why I classified this as an operating update. When Aveng successfully banks this amount and finishes the bridge, we can move it up.

Share buybacks and dividends

• For a useful reminder of how huge Naspers and Prosus are, share repurchases last week came to R1.68 billion and €338 million respectively.

• Omnia Holdings has obtained SARB approval for the chunky dividend of 525 cents per share (current share price R67.87). The last day to trade is Tuesday 26th July.

• Similarly, Bytes Technology Group has received SARB approval for its proposed final (4.2 pence per share) and special (6.2 pence per share) dividends. The dividends will be proposed at the Annual General Meeting on 26th July.

• Don’t forget that British American Tobacco and Glencore are both busy with share buyback programmes and are releasing daily updates.

Notable shuffling of (expensive) chairs

• Following the sad passing of Meyer Kahn in June, Capital Appreciation Limited has appointed Kuseni Dlamini as Lead Independent Non-Executive Director. He has been on the company’s board since May 2018 and is currently the Chairman of Massmart and Aspen, having previously held the roles of CEO of Old Mutual South Africa and Head of Anglo American South Africa. Kahn’s shoes are big to fill and Dlamini looks more than capable of doing so.

Director dealings

• Capitalworks is a long-standing partner of listed food business RFG Holdings. In recent weeks, the private equity investment house has bought shares worth nearly R460k. To add to that tally, there’s been another purchase of over R50k. This is announced on the market because two of the RFG Holdings directors are from Capitalworks.

Unusual things

• Fund manager Bluebell Capital Partners is attempting to improve the corporate governance at Richemont. Before you panic, the company hasn’t done anything wrong, so the emphasis here is “improve” rather than “fix” it. Bluebell is pushing for the “A” shareholders (the listed shares that normal plebs can buy) to be able to appoint a representative to the board. The fund manager also wants Richemont to amend its articles of incorporation such that A and B shareholders have an equal number of representatives on the board. It’s an interesting attempt at levelling the playing field for shareholders. The board is “considering” the proposals.

• Deutsche Konsum REIT is having a little fight with the German financial regulators. BaFin is upset about the treatment of loan agreements in the company’s separate financial statements. The investment of liquid funds with the main shareholder was fully disclosed according to the company and the auditors issued an unqualified audit opinion. It will be interesting to see how this develops.

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