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Long4Life sinks on revised Holdsport offer

Investors give Long4Life’s share price a 22% dressing down after a sustained rally.
Brian Joffe, Long4Life's CEO, said the Holdsport acquisition provides Long4Life an entry into the sport and outdoor markets. Picture: Moneyweb

Brian Joffe’s new brainchild Long4Life sweetened its offer to purchase sportswear and goods company Holdsport by 18%, in the process ending Long4Life’s exuberant rally over the past week.

Holdsport is the owner of Sportsmans Warehouse, Outdoor Warehouse and wholesalers Capestorm, First Ascent, African Nature and Second Skins.

On Tuesday, Long4Life raised the share swap from 10.44 to 12.10 of its shares for each share in Holdsport. Long4Life gave shareholders a second option – a share swap of 11.2 shares plus R5 cash, capping the acquisition price tag at R204 million.  

Long4Life’s share price closed at R6.06 on Tuesday – down from the R8.38 it touched during the day – valuing Holdsport at R73.32/share in the first option, which represents a 9% premium on Holdsport’s current share price.

When Long4Life issued a cautionary announcement on the Holdsport deal on July 3, it offered 10.44 of its shares, worth R5.90 at the time, valuing Holdsport at R61.59/share.

Holdsport’s share price finished nearly 1.75% higher at an all-time high of R66.70 on Tuesday while Long4Life’s sunk by 22%.

 

Long4Life share graph

 

The sell-off follows Long4Life’s rally over the past week from R6 to nearly R8, prompting one analyst to describe the appreciation as “crazy”.

“The share price is giving back to the excess speculation rise because Long4Life is now paying R73 for a Holdsport share instead of nearly R100 during its rally,” Wayne McCurrie, senior portfolio manager at Ashburton Investments told Moneyweb.

Simon Brown, the founder of JustOneLap, agreed with McCurrie, adding that the company’s raised offer for Holdsport probably spooked shareholders.

Brown said the selloff in Long4Life’s share price now brings “more sense to the table” in terms of the price that it would pay for Holdsport. “Coming to a R6 share price level is reasonable,” said Brown, rating the share price’s fair value at R5.50.

A successful acquisition of Holdsport, which is expected to be concluded by the third quarter of 2017, would see Long4Life grow its market capitalisation from R3.1 billion at the time of writing to about R5.9 billion. Holdsport is the second deal for Long4Life after it purchased beauty franchisor Sorbet this month for R116 million.

Sorbet is a smaller deal as it would contribute about R10 million a year to Long4Life’s earnings vs Holdsport’s R191 million. Long4Life has a war chest of R2 billion for future deals.

Long4Life’s initial advances on Holdsport surprised investors, who questioned whether it fits Long4Life’s stated focus on the lifestyle, beauty and outdoor industry.

McCurrie said Holdsport, with a total footprint of 63 large format stores, is a good fit for Long4Life saying Joffe wanted to acquire a business with big distribution instead of starting something from scratch.

“Joffe is going to change the focus of Holdsport and introduce many new product lines and activities because he now has the distribution to put new products through. He obviously wanted a big retail platform.”

Joffe, Long4Life’s CEO, said the Holdsport acquisition provides Long4Life an entry into the sport and outdoor markets, which “we believe have tremendous future growth potential”. 

Joffe is doing what he has done through Bidvest, a company he founded more than 30 years ago. Over the years, Bidvest acquired companies with large distribution networks, making it a sizable industrial company in SA.  

Holdsport is still a cash generative business despite SA’s retail malaise.  The company grew group sales by 5.8% to R1.8 billion in the year to February 28, with the performance of its 39 Sportsmans Warehouse stores helping to lift sales. Like-for-like retail sales grew by 1.8%.

Former Famous Brands CEO Kevin Hedderwick joined Joffe at Long4Life as chief operating officer and an executive director, the second act for both entrepreneurs in business. 

“The second act is never as simple as the first one. Even if Long4Life works, we are talking ten to 20 years to build scale to it. Famous Brands was a 15-year journey and Bidvest a 30-year journey. Long4Life is not going to happening in a hurry,” said Brown.

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There is a cautionary 5/7 unrelated to Holdsport .

I think it relates to their acquisition of Sorbet Holdings on 14/7.

It gave me a good price to add more shares at that price

I think this is a good share to buy, so helped my entry point.

This is a good company to invest. If you looking a good future company.

End of comments.

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