Ever regretted that big shopping spree; when you’ve come home with your arms full of goodies that absolutely will make your life better – only to find a few months down the line that the bank is about to foreclose because you’ve run up so much debt that you can’t pay your bond?
First published in Daily Maverick 168
Well, that’s an extreme case, but it illustrates the kind of trouble a number of listed companies have run into over the past few years as they accrued debt to fund acquisitions.
Ascendis Health is selling one of its most profitable businesses as it sorts out its balance sheet and gets its debt under control. It didn’t necessarily plan to sell Cyprus-based pharmaceuticals business Remedica before it received an unsolicited approach at the end of 2018.
Chemicals and fertiliser group Omnia is further down the line sorting out its balance sheet. It’s not a forced seller after restructuring its operations and raising R2-billion in a rights offer in 2019. Like Ascendis, it wasn’t a planned seller of Oro Agri, the bio business it bought just two years earlier. Similar to Ascendis, it incurred a lot of debt due to its ambitious expansion plans.
Last week (12-18 October, 2020), it said it was close to finalising a deal to sell Oro Agri after potential buyers came forward with an offer that it said deserved the consideration of its board. Now, if the offer was too good to refuse, that makes me think it might receive more back for the business than the $100-million it paid in 2018 when it planned to use Oro Agri as a springboard into new markets where it was already established. While selling the company could possibly clear debt that declined to R1.88-billion at the end of March from R4.4-billion a year earlier, it would lose a source of hard-currency earnings.
Sadly, Ascendis’ track record of making a profit from disposals hasn’t been great so far. It paid €260-million for Remedica and another €170-million for European-based sports nutrition company Scitec in 2016. While it’s unclear how much it will fetch for Remedica, it pocketed €5million (R100-million) for Scitec in July.
Hopefully, Omnia does better.
Flipping Gourmet Burgers
It would be nice, at least for investors, if Famous Brands could beat the media with news about its own operations.
Sky News has become a reliable source of developments at Gourmet Burger Kitchen (GBK), Famous Brands’ ill-timed UK acquisition. So much so that it’s consistently ahead of SENS with the news. Hours after the broadcaster reported that entrepreneur Ranjit Boparan, known in UK circles as the ‘chicken king’, had reached a rescue deal to buy, Famous Brands confirmed that control of the chain had been passed over to administrators.
It’s not the first time Sky has been ahead on the news. In September, the broadcaster reported that Deloitte, appointed to advise Famous Brands on its options, had started approaching prospective buyers for GBK.
It’s been an expensive exercise for Famous Brands. It bought GBK for £120-million in 2016, or about R2.1-billion at the time. That’s after testing the waters with the acquisition of Wimpy in the UK nine years earlier. The idea was to boost its local income stream with hard currency earned outside of Africa. However, just a few months before it took ownership, the UK voted to leave the European Union. Combined with weak economic conditions and declining consumer confidence, that turned the company’s plan on its head. Instead of becoming a source of hard-currency earnings, it’s been a drain. So much so that Famous Brands has impaired the investment a number of times, before writing it off completely last month. In April, it closed the funding taps as Covid-19 dealt it a further blow, sealing GBK’s fate.
While Boparan’s growing restaurant empire benefits from distressed sales (it bought Italian restaurant chain Carluccio’s out of insolvency earlier in 2020), Famous Brands will have to settle for customers with less expensive tastes at Wimpy.
Is ATON ready for a second bite?
ATON has been awfully quiet since abandoning its bid for control of Murray & Roberts (M&R) in 2019 following the hostile reception it received to its R7.1-billion offer, not to mention the opposition of the competition authorities.
Well, a year has now passed since the German investment group threw in the towel, leaving it free under local takeover rules to have another go. And M&R fully expects it. Earlier in 2020, CEO Henry Laas said it was likely to come before the end of the year. So far, nothing though.
Ed Jardim, the company’s head of investor relations, says the matter was broached when it held calls with its biggest shareholders after releasing its annual results in August. While it was a good discussion, Jardim says ATON wasn’t keen to discuss the matter.
In 2019, ATON was prepared to pay R17 per share for M&R. Back then, that was a reasonable premium to the R12-R15 range the company’s stock was trading at. In June 2018, after ATON was obliged to raise its initial R15 per share offer to R17, M&R traded above R19 as shareholders bargained on getting more. However, an independent board of directors at the group insisted fair value sat at R20-R22 per share. It also maintained that it had charted its own course, which would be better for shareholders in the long run.
Barring the inescapable impact of Covid-19, M&R has been doing okay. In fact, its shares climbed by close to a third in the first half of the week after it said its Clough subsidiary had won a new energy contract in Australia, adding to an already strong order book. Still, even after its recent rise, it’s only worth half of what ATON was offering.
While its original deal might now be enticing to shareholders if the German company returned with an offer, some directors would also be in the pound seats after they recently took up shares under its short-term incentive scheme at what analysts described as rock-bottom prices.
With a stake of close to 44%, it wouldn’t take much for ATON to cross the control threshold that would give it greater access to M&R’s lucrative mining business, which would be a good fit with its own Redpath Mining division. However, that’s just what the Competition Commission doesn’t want as it would reduce the competitive landscape. If it does come forward, it had better have a plan. BM/DM