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Some sumptuous corporate gift-giving to round off the year

Pre-Christmas asset sales and festive season allocation of share awards, with a lesson in hubris thrown in for good measure.
Last week saw Woolies sell its flagship David Jones store in Sydney for ‘around one-third the price of comparable premium retail’ in the city’s CBD. Image: Shutterstock

There were a couple of great pre-Christmas asset sales last week courtesy of companies whose balance sheets had been severely stretched by ill-considered growth strategies.

Just weeks after finalising the headline-grabbing sale of 50% of the base chemical business of its recently-completed Lake Charles Chemicals Project (LCCP) in Louisiana, Sasol announced the sale of its gas-to-power plant in Mozambique.

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The LCCP asset was sold for R33.5 billion – less R557 million of fees – and last week’s deal will add just over R2 billion to the group’s slowly increasing cash assets and also contributes to its slowly decreasing operational asset base.

A serving of humble pie for Woolworths

But the juicier transaction, at least from a media perspective, was last week’s sale of the flagship David Jones store in Elizabeth Street in Sydney, Australia.

This is the hugely ambitious store that had generated so much management excitement in the grim years shortly after Woolworths’s R21 billion acquisition of David Jones in 2014.

It was also the store that soaked up huge investment by the retailer and the various high-profile consumer brands that were trying to lure customers to the sparkling CBD outlet.

The deal was struck at Au$510 million (R5.6 billion), which is a comfortable Au$133.2 million (R1.47 billion) above the property’s current book value.

The transaction is in effect a sale-and-lease-back deal as David Jones has signed a 20-year agreement with the new owner.

In addition, reflecting a remarkable optimism for the very long-term future of the troubled Australian retailer, David Jones has five 10-year options on the lease. The terms of the deal give the purchaser Charter Hall a 5% yield on the 12-storey property located smack in the middle of Sydney.

Charter Hall, which is the largest landlord in Australia, has described the deal as “a deep-value purchase” according to Australian media.

“You’ve got a three-street frontage with knockout views of Hyde Park and the Sydney Harbour. With Elizabeth Street frontage you can never be built out. That’s super-prime,” Charter Hall’s managing director David Harrison told The Australian Financial Review on Tuesday (December 22).

The newspaper said the price paid for the property was “around one-third the price of comparable premium retail in the Sydney CBD” – so a bit of a giveaway for Woolworths.

The new Woolworths board evidently believed it had little choice given the pressing need to ensure that David Jones’s debt position was ringfenced not only from Country Road, which is also based in Australia, but Woolworths itself.

“The board of directors of WHL [Woolworths Holdings Limited] believes that the proposed transaction will further strengthen the David Jones balance sheet and support the repositioning of the business to deliver shareholder value,” said the company in a Sens announcement on December 21.

The Woolworths share price edged up from R36.65 on Monday to close the short week’s trading at R38.35, indicating the market was relieved but not overly excited by the deal.

Meanwhile, over in the abbreviations stable …

There was yet more share trading by executives of food producer AVI last week, and MTN announced a festive season allocation of share awards for some of its lucky executives.

But probably the most interesting share awards announced were those gifted by ARM (African Rainbow Minerals) to its executive chair Patrice Motsepe.

Motsepe scored R78.6 million worth of shares thanks to generous awards made back in 2017.

Just over R59 million of that amount was linked to performance shares, with an additional R19.5 million coming from bonus shares.

But perhaps even more interesting was the R10.5 million in performance shares picked up by non-executive director Mike Arnold.

Then there’s VCP (Value Capital Partners), where key executives are continuing to buy up shares in two relatively recent additions to its portfolio of assets – Sun International and Net1. The steady pace of buying should probably be interpreted as a significant endorsement by people in the know.

The cost of hubris

It’s strange that none of Alibaba’s international shareholders, who must be feeling extremely disappointed by the significantly diminished prospects for their investment, are talking about suing the group’s founder.

How could Jack Ma not have understood the delicate nature of the relationship that exists between the Chinese government/Chinese Communist Party and China’s powerful corporations?

And how could he not have realised that the more powerful those corporations become the more delicate that relationship?

It’s difficult to know precisely what the Chinese Communist Party wants from its private sector players, but it would be safe to assume it doesn’t want high profile executives lambasting them in public.

Alibaba grew to what it is thanks to Chinese government policy that blocked international competition and sheltered an otherwise shoddy operating environment. Jack Ma seemed to believe it was all his own doing. He also assumed that restrictions would never be imposed on his group’s anti-competitive behaviour or on its potentially destabilising and aggressive micro-lending activities. His ill-considered behavior has cost shareholders dearly.

Naspers and Prosus shareholders are lucky to have the much more circumspect Pony Ma at the helm of Tencent.

He is by all accounts a humble individual who is extremely aware that the growth of this phenomenal business is not all of his doing.

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Woolies needs to sell and get out of Australia. They will do much better in South Africa and Africa!

Good article – thanks.

Mr Ma could be all the good things people say – BUT Chinese Government and their ‘controllers’ is edging towards Tencent (my view based on reading) and Naspers and Prosus may have tough times ahead.

I may be wrong – again – but I climbed out at lovely high prices recently.

End of comments.

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