Listed investment company RECM and Calibre (RAC) has made a play for majority control of offshore investment fund Astoria, via its wholly-owned subsidiary, Livingstone Investments.
RAC communicated its intention to acquire the shares of Astoria that it does not already hold to the board of Astoria on Friday. It has offered R13.50 per share, a 9.8% premium on the current share price of R12.29, but less than Astoria’s current NAV of $1.20 (R15).
RAC already owns 28.72% of Astoria. It acquired this stake over the last eight months, initially under a cloak of anonymity. It emerged in March that it was Livingstone that had quietly built up a sizeable stake in Astoria. This immediately aroused speculation about what the ultimate game plan was. The balance of Astoria shares, not held by Livingstone, are owned by some 4 000 shareholders. Of these, 28% are clients of Anchor Capital, the investment firm that manages Astoria’s investment portfolio. PSG and 36One manage smaller stakes on behalf of clients.
RAC executive chairman Piet Viljoen was not available to elaborate further on RAC’s plans for Astoria beyond what was outlined in the statement: “RAC intends to provide its proven capital allocation framework to the board of Astoria for implementation going forward.”
Astoria is an offshore investment vehicle that listed on the Stock Exchange of Mauritius and the JSE’s Alt-X in 2015. It has 83.6% of its fund invested in direct listed global equities, 6.3% invested in niche funds and private equity, and 10% is held in USD cash. Its biggest holdings include Apple, Facebook, JP Morgan Chase & Co, Starbucks and investment group Blackstone.
In its results for the quarter to March 31, Astoria informed the market that the NAV per share is $1.20 or R15 at current exchange rates.
The share is trading at a 22% discount to its NAV, which means roughly R400 million of value is up for grabs, presuming the potential suitor has a plan to unlock this value.
If RAC succeeds in acquiring 50%-plus of Astoria shares, it will presumably remove Anchor Capital as Astoria’s portfolio manager: “RAC intends to provide its proven capital allocation framework to the board of Astoria.”
This makes the bid for Astoria rather interesting – RAC’s deep-value investment style is profoundly different to that of the current manager. To change managers requires shareholder approval.
If this were to happen, Anchor has the right to claim compensation equal to five times gross the annual management fee, which is 1% of assets under management, notes Vunani investment analyst Anthony Clark.
In 2017, that fee was $1.367 million. Thus, Anchor, upon any vote succeeding for change of management, would be entitled to between R80 and R90 million, depending on the exchange rate at the time.
Aside from Astoria’s potential as an investment vehicle, there is another angle that RAC may be looking to exploit, Anchor Capital CEO Peter Armitage noted in this article. “It takes time and effort to set up a structure like Astoria,” he says. “Aside from the fact that Astoria is domiciled in Mauritius, it has Reserve Bank approval to invest further funds offshore. This makes it a very valuable structure.”
When contacted on Sunday, Armitage noted that “at the end of the day the Astoria board will act in the interest of shareholders. We will have the offer independently assessed and if it is fair and reasonable, then we will recommend that shareholders accept it.”
The offer is conditional on RAC achieving a 50%-plus stake in Astoria and Astoria shareholder approval of the top-up payment terms. Shareholders willing to sell their shares will be paid in cash. If shareholders agree to sell more than 28.74% in shares (the equivalent of R355 million), they will be paid in cash and RAC participating preference shares. RAC pref shares are currently trading at R20 a share.
The offer is also conditional upon the approval of RAC shareholders, who will receive a circular before May 17.
Astoria will issue a statement Sens later on Monday (today).