The founders of Dis-Chem, Ivan (71) and Lyn Saltzman (69), have begun reducing their majority shareholding in the pharmaceutical retailer. Over the coming months, they will sell between R5.4 billion and R5.5 billion in shares to various investors.
The group announced late on Tuesday that the family would sell 64.5 million shares (or 7.5% of the company) via an accelerated bookbuild offering. On Wednesday morning, it confirmed that this bookbuild had closed “following strong demand”. This stake was sold at R30.30 per share, representing a 4% discount to yesterday’s price. Ivlyn (Pty) Ltd (the founders’ investment vehicle, whose ultimate shareholder is the Saltzman Family Trust) raised R1.96 billion through this sale.
The family will divest a further 32 million shares (or 3.75% of the group) to a “select number of key senior executives who are central to the delivery of the company’s strategic priorities”. It says current CFO Rui Morais is included in this. The group revealed in its 2021 annual governance report that Morais had been “approved by the nomination committee as successor” to the current CEO Ivan Saltzman. This followed concerns from shareholders and investors regarding succession planning.
The family has undertaken to vendor-finance the management retention scheme at no cost to Dis-Chem and the group has said that “participating management are to be subject to a 10-year lock-up”. Details will be negotiated during the forthcoming closed period and the group says details will be announced alongside the release of its interim results in November.
Given this timing, it is highly likely that Saltzman will retire as CEO following the publication of the group’s results.
The group also announced a third transaction where the family will sell a further 86.5 million shares (or 10.05% in the group) to a consortium of black economic empowerment (BEE) investors. The group says the sale of this tranche, “while agreed in principle, is still subject to the fulfilment of certain conditions, including final approval by one of the BEE consortium members and the conclusion of associated financing agreements by August 31, 2021”. If this is not finalised by then, the group says there “is no certainty that the BEE tranche will be concluded in its current form, or at all”.
Its most recent broad-based black economic empowerment verification certificate (September 2020) reveals that the group has a level of “non-compliant”. It has a score of 26.48 out of 111. Based on voting rights, its black-owned shareholding is currently 4.46%. It has 0% BEE procurement recognition.
Prior to these transactions, the founders held 52.67% of the business (or 453 million shares). Once all three transactions are complete, this shareholding will be reduced to 31.4% in the group. The family has agreed to a lock up of 360 days on the remaining holding, which seems to hint that it has plans to dispose of a further portion of this thereafter.
|Bookbuild||64 506 336||R1.96 billion|
|Management retention scheme||32 253 168||R977.3 million*|
|BEE consortium||86 468 741||R2.59 billion**|
|Total||183 228 245||R5.4 billion|
* Assuming price of R30.30 per share
** Assuming price of R29 per share
Upon listing, the family shareholding reduced from 66.9% to just above the 52% mark, as that chunk of shares held by them was repurchased by the company and sold to new investors. In this transaction, the controlling shareholders netted around R1.6 billion.
Memorably, the founders actually scored twice in the listing: once, via this share repurchase as part of the listing and secondly due to the company declaring sizeable dividends ahead of listing. To pay these dividends, it assumed over R2 billion in debt. In the year ahead of listing, the company paid over R2 billion in dividends to shareholders. While it is highly cash generative, it is unlikely the group’s bank overdraft would’ve swelled to over R2.3 billion had it not paid those dividends.
In that year ahead of listing, the Saltzmans (with their then-66.9% stake) received R1.3 billion in dividends.
The family remains a related party as it holds sizeable stakes in the group’s major warehousing facilities. The group pays rent in excess of R100 million per year for these warehouses. The lease liability for these related party transactions (including stores held by related parties) totals R1 billion. Following criticism from shareholders, it said in its 2020 annual report that “the group is … driving the process of selling its distribution centres”. The group has not reported any progress on this to date.