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Dis-Chem founders start cashing out billions

Three transactions will net the family as much as R5.5bn….
Image: Bloomberg

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.

Read:
Founders score twice in Dis-Chem listing
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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.

Transaction Shares Value
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.

COMMENTS   19

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Once in start upping the BEE component it’s time to take the money and run .

That’s a fact! Only in SA where you have to pay more for something that is worth less! No wonder our economy is in the gutter! Viva ANC – Viva BEE!

Exactly! There is no good outcome for investors when BEE is involved.

Even the ANC itself cannot pay its own staff.

27 years on and still pandering to racist policies.

I would also reduce my holdings to zero in this looting climate.

Who is the lucky consortium with mates at the PIC? What about vendor financing your low income employees rather than politically connected individuals? This is why SA is so unequal! Corporate SA is part of the problem with its BEE deals.

Get out before the savages burn a few more stores.

“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.”

That seems like a cash grab if I have ever seen one.

PJJ

There are interesting tax rules about limiting the deductibility of interest on debt raised to pay dividends.

This company was a big disappointment, always liked the stores. Then they continued paying themselves rent for those warehouses while refusing to pay retail landlords due to lockdown. Then those price gouging fines on PPE. Have not shopped there in a year, the local family-owned pharmacy now gets our business.

But good for them, they built a very successful business and cashing out a part always makes sense

Thanks for the reply Johan, I agree cashing out definitely makes sense, but I don’t think it should be at the detriment of future shareholders, regardless of what tax advantages there might be, paying a dividend that is more than x3 their net income in 2021 is ridiculous, or am I missing something?

As I have it, that special dividend was ahead of the listing, not part of this.

Ahh yes you are right Johan, that was the part I was missing.

I love reading the money web comments section because sometimes the comments appear more informed than the article itself. But the subtle racism i come across from time to time is so disappointing.

@Scopo. Welcome. Yes, MoneyWeb readers are a special bunch…we also learn from one another, yet we try to respect each others opposing opinions.

Racism? I was about to (be witty) and answer “We try our best to tone down our racism when commenting” 😉

Then realised, as a long-standing reader, there’s little racism to be found amongst commentators. You need to have your “economic/financial glasses” on. One must remember that most commentators (incl. myself) will be anti-ANC due to the site’s demographics. Not because we don’t like the people representing the ruling party, or rather the colour or ethnicity of the people supporting the ANC, but because of the short sighted and economically damaging policies of the ANC. Playing the ball and not the man.

And many of us commentators will be anti-BEE/AA. Why? Besides that AA/BEE it is an artificial system based on race (like apartheid), it is not based on any sound long-term economic principles. MoneyWeb commentators have their “financial/economic lens” on. We are inclined to attack ANYTHING that is against economic prosperity (for the country as a whole), and it includes high taxes (national & local), unnecessary red tape, corruption & mismanagement, to name a few. We are mostly pro-business, pro-freedom, and support the uphold of law & order. We measure ourselves (and thus the country) on a set of western, Eurocentric value system, admittedly not an African, tribal, strong-man value system, where western accountability ranks low (..maybe this cause some to appear racist, but they aren’t)

When commentators thus attack those opposing a western value system, we hold dear, surely that cannot be racist? We want the best for the country, and expect the ruling party to do the same, how can that be racist when we rightfully criticize the ruling party?

(Visit any other country’s media, and read international news events…its own people are usually the most outspoken against their particular ruling party of the time. Actually, the ANC comes off too light in criticism….)

Thanks for taking the time Michael. I mostly agree with you and let’s not even talk about the ruling party (not worth the time of day). The reason i keep coming back to the MW comments section is that i really appreciate the differing (sometimes very strong) opinions.

If i am not mistaken, your reply slightly acknowledges the problem i raise. Be that as it may, 99% (untested) of the comments are usually on the subject matter without any unnecessary (read racist)jibes.

Again, thank you for taking the time. Let’s keep building this country.

@Scopo. I welcome your comment. You come across as a very descent & mature/educated person 🙂

Me too….the MW commentators are the best. Yes, there are many opposing views (and some have harsh words). The thing is that any article is sponsored / PR for the business or individual that writes it. So article topics could be skewed to promote the sponsor.

On the other hand, MW commentators (all with nom de plumes) will call a spade a spade. We have no personal PR to lose. And many MW comments contain more hard truths, than an article which is written in diplomatic sense.

Wow! What a great success story. Well done Saltzman’s. There is no shame in taking some chips of the table. It makes sense if you are in your 70ties and you own 52%.

When the Oppenheimers left Anglo in 2011/12, the share price was R371 and they were BS’ing the whole world, including me, about how good, solvent and excellent Anglo still is, never mind Cynthia Carroll being in charge. Four years later I lost my job being retrenched, and Scaw Metals as a profitable going concern were sold to help in balancing the books. Old lesson learned the hard way – if the smart money starts running, you better start running too.

End of comments.

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