2014 will be remembered as the year in which mega-deal activity returned to South Africa. Although half of the big merger and acquisition deals undertaken last year were by foreign domiciled companies it was encouraging to see that local companies were not left behind.
In February each year DealMakers recognises the achievements by players in the SA M&A industry in a glitzy awards dinner. This year no fewer than nine transactions made the short-list for the sought after title of ‘Deal of the Year’. Together these nine transactions totalled an estimated jaw dropping 36% of the total estimated value of activity during the year carried out in some 500 transactions.
Disposal by Standard Bank of a 60% stake in Standard Bank plc to the Industrial and Commercial Bank of China (R8.5 billion)
Praised for freeing capital locked into a loss-making business, the deal represented the first foray by a Chinese bank into the UK wholesale market with the option to increase the stake by 20%. The deal gives Standard Bank the ‘best of both worlds’ as it retains a foothold in London and benefits from the Chinese partnership. However in December the UK subsidiary was accused of fraudulent activity involving physical aluminium held in bonded warehouses in China. The terms of the deal were amended to ensure the purchase price will correctly reflects the true and eventual net asset impact of the aluminium exposure.
Acquisition by Woolworths of David Jones (R21.4 billion)
The purchase by Woolworths of Australian retail chain David Jones was anything but straight forward and tested the resolve of all involved. Just to what extent irate minority shareholders can upset proceedings was clearly evident in this transaction. What made the deal unique was not only the funding achievement in a short space of time, but also the varying complexities in obtaining shareholder and regulatory approvals. Although Woolworths did eventually take home the prize it was not before the minority shareholder Australian billionaire Solomon Lew walk away with a very sweet side deal of his own involving his shareholding in the Country Road chain. The acquisition was funded through a combination of cash, debt and equity bridge funding.
Acquisition by Growthpoint Properties of Acucap Properties (R13.41 billion)
The acquisition represented a unique opportunity for Growthpoint to increase the size of its SA portfolio to just over R72bn, representing the largest transaction undertaken by the company thus far. The deal represented a major milestone in achieving its stated objective of growing its property portfolio defensively, through the acquisition of complementary and quality enhancing assets. Acucap’s portfolio is mainly retail and office properties, not dissimilar to Growthpoint and, with its shareholding in Sycom will now also have exposure to industrial.
Acquisition by Vodacom of Neotel (R7 billion)
Rumours around a possible tie-up first surfaced a year earlier in May 2013 with Vodacom’s interest centred around Neotel’s spectrum access. The deal not only expands Vodacom’s infrastructure footprint but presents the opportunity for Vodacom to offer advanced services through the vast network to which Neotel has access in parts of Africa. With the acquisition of Neotel, Vodacom has a head start on its rivals as it will now be able to supply its own landline network to carry its calls and offer that to other network operators as an alternative to Telkom. As expected the competition has appealed to the country’s regulators to block the deal with calls for Neotel’s spectrum to be returned to communications regulator Icasa in the event of a change of company ownership so that the network can be reassigned. For the consumer, however, the transaction looks favourable, increasing competition and broadening customer choice. A meeting held by Icasa on this issue is due to end today.
Acquisition by Sun International of stakes in Monticello Grand Casino & Entertainment World (R1.54 billion)
SI’s growth plan focusing on offshore expansion has been steadily gaining momentum. The announcement in August that it had acquired an additional effective 54.7% stake in the Chilean casino giving it an effective 98.8% holding saw the group tighten its grip on the Latin American gaming industry. The SA gaming industry is mature and 38 of the 40 licences have been allocated and actioned. While focus has been given to extracting better efficiencies from local assets the deal provides SI with the opportunity to grow its portfolio of premier assets in the region, which currently consists of flagship Monticello and the Ocean Club Casino in Panama.
Acquisition by Exxaro Resources of TCSA from Total Coal South Africa (R4.96 billion)
Little wonder that the price tag for SA’s fifth largest coal producer raised an eyebrow or two given that TCSA showed a R55 million loss in its 2013 financial year. But Exxaro management said they were comfortable with the amount paid as the acquisition gave the company the flexibility to adjust its own portfolio increasing its it by some 12%. TCSA’s mines and underdeveloped coal assets are located in the Witbank coal basin in Mpumalanga with remaining lives of more than 20 years and a resource base of 1 498 million tonnes of coal in the ground and 395 million tonnes of run-of-mine coal resources. It also has a 74% stake in Dorstfontein and Forzando mines, a 49% interest in the non-operative Tumelo coal mine and a 51% stake in the potential Eloff Greenfields project. Part of the deal with TCSA involves related export marketing rights involving the Richards Bay Coal Terminal. These will double Exxaro’s export allocation as result of an additional entitlement export of up to 4.09 million tonnes per annum.
The Northam Platinum BEE deal (R4.6 billion)
Heralded as a ‘landmark transaction’ by Northam’s CEO it was considered as such for two reasons: it combined the increased BEE ownership of the miner with a R4.6 billion capital raising exercise and it was done with the help of anchor shareholders in an investment climate showing little appetite for mining stock. The transaction ensures that the owner of the world’s deepest platinum mine has in place BEE ownership of 35.4%, higher than the required 26%, for at least ten years. The consortium will benefit from an immediate R400m cash injection, a fee for being locked in for the period which according to Northam management is seen as ‘fair value’ given a full lock in and restraint of trade. Objections were raised by NUM who said it had not been consulted and felt it had failed the objective of the mining charter which is meaningful economic participation for all the beneficiaries.
Acquisition by Steinhoff of Pepkor (R62.8 billion)
Steinhoff acquired a 92.34% stake in Pepkor from Brait and entities controlled by Wiese in a share and cash transaction. Wiese will receive 609.1 million shares (19.9% stake in Steinhoff) valued at R34.72 billion for his 52.47% stake. Brait will receive a combination of 200 million shares (valued at R11.4 billion) and R15 billion cash for its 37.06% interest. Pepkor management will reduce its shareholding in Pepkor from 10.47% to 7.77% in exchange for 29.9 million Steinhoff shares valued at R1.7 billion. There is mixed opinion as to who benefited most from the transaction given that the price paid is almost twice Pepkor’s annual sales. It would appear that Brait minorities felt they received the short end of the stick; not only was the price tag steep but exposure to Steinhoff can be bought in the market. What the deal does for Steinhoff is to add discount clothing, footwear and soft furnishings to its line-up and take it into a new league placing it, by market capitalisation, as the third largest in Europe.
Formation of Coca-Cola Beverages Africa through the merger of bottling interests of SABMiller, The Coca-Cola Company and Gutsche Family Investments
The merger will create the third largest bottler of soft drink in Africa and the 10th in size in the world with annual revenue of $2.9 billion. SABMiller will have a 57% stake, The Coca-Cola Company 11.3% and GFI (Coca-Cola Sabco) will hold the remaining 31.7%. The new bottler will handle 40% of Coca-Cola’s beverage volumes in Africa and more than 80% of its volumes in SA. The deal also furthers Coca-Cola’s diversification into other areas through an additional side transaction that involves SABMiller selling its global Appletiser soft drink brands to the US group for R2.85 billion. This excludes the brewer’s non-alcoholic malt beverages which are popular in Latin America and West Africa.
The clear benefit to SABMiller, which has its roots in the region, is to allow it to capitalise on the rapid growth of soft drinks while beer sales volumes stagnate.