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Malbak won't sell off costly family jewels for a pittance
Offers so far received for group subsidiaries don't match latent value, writes ZILLA EFRAT
MALBAK's moves to unbundle its R8,2-billion empire are proving to be no "fire sale". The industrial conglomerate has had many "expressions of interest" in its subsidiaries, but no deals have been concluded. Acting chief executive Peter Beningfield says so far the offers received for Malbak's listed groups are not at the value these companies could command after unbundling. Unless the situation changes, the shares in listed companies will be distributed to shareholders. Potential buyers have been given until 29 November to submit firm offers, but anything could happen up until the end of March 1997, the target date for the unbundling. Beningfield confirms that negotiations are under way to sell Malbak's stake in Haggie to Anglo American Industrial Corporation. Along with Malbak, it has joint control over the engineering group and possible pre-emptive rights to Malbak's share. He says shareholders are likely to receive cash in exchange for Malbak's interest in London-listed specialist paper board and plastics packaging group MY Holdings. This is because foreign exchange controls would prevent the distribution of these shares. The underlying market value of the listed companies indicates that for every 100 Malbak shares held, shareholders are likely to get 11,2 shares in Foodcorp, 13,8 in SA Druggists, 61,2 in Kohler, 14 in Ellerines and 37,3 in New Clicks. Beningfield says negotiations are in progress to sell Malbak's unlisted subsidiaries, which include Defy, Tedelex, ICL, Malbak Motor Holdings and Eagle Freight, but no agreements have been signed. The proceeds from these sales will be distributed to shareholders. On Thursday last week the market value of Malbak's listed companies was R7,5-billion while the unlisted assets are estimated to be worth around R700-million. This brings the total value of Malbak to about to about R8,2-billion. The net asset value of a Malbak share last Friday was R24,60 - a premium of 15,2% to the share's price of R21,35 on that day. However, Malbak rose to about R22 during the week. Beningfield says the objective of the unbundling is to eliminate this discount between the share's price and its underlying value. He expects the unbundling to improve the tradeability of the underlying companies' shares and possibly result in a re-rating for some of the shares. Explaining the rationale behind the unbundling, he says Malbak's board believes that international investors dislike conglomerates. Malbak's seven listed companies are each of a size where they can stand alone while the contribution of the unlisted companies to earnings is now only 11%. If Malbak's stake in its listed companies is distributed to shareholders, Sankorp, with the Rembrandt Group, will hold more than 35% in Foodcorp, Kohler, SAD and Ellerines Holdings. Both say that, possibly excepting SAD, they would prefer to sell each stake in a single transaction to secure a control premium. Attempts would be made to obtain similar offers for minorities. According to Beningfield, the investment philosophy of Sankorp, along with its parent Sanlam, is to concentrate on being a financial services group. In certain cases, they plan to transform some of their strategic investments into portfolio investments. Sankorp has indicated it could retain its holding in SAD as this will complement Sanlam's drive into managed healthcare, an area seen as having growth potential. Some sources say Rembrandt is interested in buying into both Kohler and Foodcorp. The latter could offer it diversification opportunities and synergies with its own food subsidiary, Hunt Leuchars & Hepburn. In addition, Thebe Investments' industrial arm has emerged as a contender for unlisted ICL. It recently bought 10% of the computer group from Malbak and has the option to buy Malbak's remaining stake of 41%. Beningfield confirms that Kohler, among others, is a potential buyer for MY Holdings while names like Irish-based packaging group Smurfit and locals such as Consol, Nampak and Amic are said to be chasing Kohler. Speculation continued this week about likely buyers, especially for the unlisted groups. Talk also dwelt on management buy-outs and black empowerment deals. Meanwhile, Malbak beat the even more bullish analysts' forecast with its 16% rise in earnings a share before exceptional items to 191c for the year to August. At R643-million, attributable profits are 26% higher. A final dividend of 40c brings the total for the year to 58c a share - also 26% more than last year. Tedelex was the "blot" in an otherwise good year for Malbak subsidiaries. Hurt by illegal imports and lower margins, it turned in losses of R34-million. Top of page
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