Imara Holdings Limited’s attempt at preventing a hostile takeover from FWA Financial Ltd has fallen through following two major developments that tilted the scales in FWA’s way. This week, Competition Authority unconditionally approved the proposed acquisition of 71.23% of the issued share capital of Imara Holdings Ltd by FWA Financial Ltd, leading to a 100% shareholding.
In approving the acquisition, the antitrust body determined through the analysis of the facts of the merger, that the proposed transaction is not likely to result in the prevention or substantial lessening of competition, or endanger the continuity of the services offered in the market under consideration. The market structure in the provision of investment banking, financial products and services to corporate, institutional and private clients will not be altered and as such does not raise any competition concerns.
The regulatory approval is a major victory for FWA, a financial holding company incorporated in Mauritius, as it now set to be a controlling majority shareholder in Imara following a major development that saw high ranking shareholders accepting the takeover offer. A total of 59,494,301 Imara Shares are currently in issue, of which 17,234,046 Imara Shares are held by FWA, representing approximately 28.97% of the issued share capital of Imara. The Offer by FWA was therefore to acquire the remaining 42,260,255 Imara Shares which are currently not held by them. The Offer was made directly to shareholders for a cash consideration of P2.10 per share.
As part of the Offer Conditions, it was announced that that the Offer will become Unconditional once FWA has received valid acceptances in respect of not less than 12,572,599 Imara Shares or such number of Imara’s shares that when aggregated with FWA’s current shareholding results in FWA owning no less than 50.1% in nominal value of IHL Shares after the implementation of the Offer (“Acceptance Condition”). FWA has since announced that as of 16 December 2016 FWA has now accepted offers for IHL shares representing 35,597,118 shares (60%) and, combined with its extant holding such share represents 89 % of the total nominal value of IHL Shares.
FWA has confirmed that if, following the implementation of the Offer, FWA owns more than 80% of the Imara Shares in issue, then it is the intention to approach the BSE to delist Imara on the basis that the requisite shareholder spread is no longer extant. Furthermore, the company said if the Offer is accepted by Imara Shareholders holding such number of Imara Shares as will result in FWA (together with its existing beneficial shareholding) beneficially holding (directly or indirectly) not less than 90% of the entire issued share capital of Imara, then FWA reserves the right to implement a compulsory acquisition of the remaining Shares in accordance with the Botswana Companies Act.
The success of FWA in achieving the threshold they needed for a complete takeover of Imara adds to the drama that has pitied FWA against the Independent Board of Imara which has been desperately fending off FWA’s advances ever since the takeover was proposed. When making its offer to take over the whole of Imara, FWA said Imara has failed to hold steady amid difficult trading conditions in the sub-Saharan African markets in which it operates in.
African economies have suffered a sharp decline in the past 18 months, driven by weak commodity prices which led to declines in currencies versus the US Dollar, difficult economic conditions, currency controls, reduced liquidity, lower share prices and reduced equity trading volumes. Indicative of the challenges experienced by Imara is the 50% drop in the value of the flagship Imara African Opportunities Fund in US Dollar terms in the period from 30 April 2015 to 30 September 2016 as a result of the decline in African equity values and redemptions.
FWA has also noted that Imara has high central costs for a company of its size, adding that the high central costs reflect the fixed costs associated with its listing on the Venture Capital Board of the BSE as well as fixed costs associated with the complexity of its business model. “In determining the Offer price, FWA has taken in to account IHL’s track record, the value of IHL’s balance sheet at 30 April 2016 and IHL’s growth prospects. FWA therefore considers that the all-cash nature of the Offer allows Shareholders to realise their entire investment at a fair value given the uncertainties facing African economies and IHL at this time,” the acquiring company said.
While it appeared that FWA had made a convincing case for the takeover, the Independent Board rejected the offer price. The board of directors of Imara were obligated to form the independent board for the purpose of considering the terms and conditions of the offer. The Independent Board, in accordance with its obligations in the Takeover Regulations, appointed KPMG as an Independent Expert to provide it with a fair and reasonable opinion regarding the fairness and reasonable of the offer consideration.
“The Independent Board, taking into account the opinion of the Independent Expert that the terms and conditions of the Offer are not fair and not reasonable, has considered the Offer and is of the opinion that the Offer undervalues the Company and, on that basis, recommends that Imara Shareholders reject the Offers,” the independent board advised before adding that the Independent Board considers the offer to be an opportunistic move to take advantage of the current short-term adverse trading environment for the IHL Group and to acquire control of it cheaply.
The Independent Board’s recommendation was to be soon overshadowed by Imara’s interim loss and the biggest blow came through shareholders who somersaulted on the promises not to sell .In an Offeree Response Circular issued by the Independent Board of Imara to Shareholders, it was revealed that Mrs Ann Mackeurtan, a non-executive director, who indirectly holds 2 623 124 shares, has indicated that she will not be accepting the Offer. The board has since released a statement that Mrs. Mackeurtan, having reflected on her original decision, has confirmed to the Independent Board on 9 December 2016, that she will now be accepting the Offer in respect of all of her shares.
With FWA having exceeded the acceptance condition and the offer now becoming unconditional as to acceptances-which means it has acquired sufficient acceptances from shareholders of Imara- the takeover is certain to go ahead. Imara shareholders will be getting P2.10 per share, which is 19% lower than the current share price. The offer consideration values the entire issued share capital of the company at approximately P125 million, based on shares outstanding. This is lower than the actual market value of Imara which is currently at P154 million on the Botswana Stock Exchange.
Based on the offer consideration, the aggregate value of the consideration payable by FWA to Imara Shareholders is P88.7 million. FWA will be funding the offer consideration by means of internal resources and a line of finance received from Standard Chartered Bank Mauritius Limited. Imara’s shares have not moved in response to the hostile takeover that begun over two months back, further strengthening the case of FWA to delist Imara after they get complete control of it.
When making the offer, FWA reasoned that the offer price of P2.10 per share is attractive to shareholders, providing a liquidity event as well as representing a fair value proposition. The Mauritius based company had made the absence of liquidity for Imara shares on the Venture Capital Board of the BSE a rallying call for shareholders to exit their positions by selling the shares to FWA. The strategy appears to have worked.
A squeaky and glittering metaphoric smile was the look reflected from the Pula against the greenback this week and money market researchers lean this on optimism following Monday’s announcement of another Covid-19 vaccine which is said to have boosted emerging market economies.
With other emerging market currencies, the Pula too reacted to optimism and fanfare on the new Covid-19 vaccine against the weakening US dollar which has been losing its shine since the uncertainty laden US elections.
After bouncing back into the Johannesburg Stock Exchange (JSE) last week Friday, following a year of being in the freezer, the Choppies stock started this week with much fluidity.
Choppies was suspended in both the Botswana Stock Exchange and its secondary listing at the JSE for failure to publish financial results. Choppies suspension on Botswana Stock Exchange was lifted on 27 July 2020. On Friday last week, when suspension was being lifted, Choppies explained that this came into fruition “following extensive engagement with the JSE.”
Choppies stock, prior to suspension, hit a mammoth decline in value of more than 60 percent, especially in September 2018. Waking from a 24 month freezer, last week the Choppies share price was at R0.64 and the stock did not make any movement.
However, Monday was the day when Choppies stock moved vibrantly, albeit volatile. Choppies’ value was on a high volatile mood on Monday, reaching highs of 200 percent. At noon, the same Monday, the Choppies share had reached R1.05. Before taking an uphill movement, Choppies stock slightly slipped by 2 cents. But the Choppies share rode up high and by lunch time the stock had reached the day’s summit of R2.00 and that was at 13:30 when investors were buying the stock for lunch.
The same eventful Monday saw gloom on the faces of Choppies rivals, when Choppies gained by 220.31 percent around lunch time its rivals in the JSE Food & Drug Retailers sector were licking wounds. Spar lost 2.94 percent, Pick Pay fell by 2.43 percent, Shoprite 7.52 percent and Dis-Chem 1.98 percent. The only gainer was Clicks by a paltry 0.51 percent.
In an interview with BusinessPost, Choppies sponsors at the JSE PSG Capital Managing Director Johan Holtzhausen explained that the retailer’s stock was in high demand after a long suspension. He said when a company list or a suspension is lifted the market needs to find itself on the pricing of the share.
“Initially when the suspension was lifted there were more buyers than sellers. As far as we could see this created a shortage of shares so to speak and resulted in the price at which the shares traded going to R1.20 and eventually R2.05 before finding its level around R0.80 sent from a JSE perspective.
This is marked dynamics and reflect that there are investors that are positive about the stock in the long run. This is a snapshot over a short period and one requires a longer period to draw further conclusions,” said Holtzhausen in an interview talking about the Choppies stock.
On Monday this week where the Choppies value grew by 200 percent, the stock took a turn looking down, closing the day at R0.87 from a high of R2.00. According to local stockbroker Motswedi Securities on Monday while there was no movement by Choppies in the local stock exchange as the retailer appeared on the board as 141,000 shares traded at P0.60 each.
However in Choppies’ secondary listing the stock price rallied to over 200 percent during intraday trading on Monday before losing steam and declining to around R0.87 share.
Before press yesterday Choppies opened the market with the stock starting the day at R0.80 then went flat for few hours before taking a slide downward, dropping 5 cents in 30 minutes. Choppies then went flat at R0.75 for 50 minutes yesterday before going up at 10:20 am where it nearly recovered the open day price of 80 cents, but was shy of 1 cent. From 79 cents the price went flat until noon.
Competition and Consumer Authority (CCA) has revealed that in its assessment of the Jet take over by Foschini, there were considerations on possible market rivalry and a clash in targeted classes.
According to a merger decision notice seen by this publication this week, high considerations were made to ensure that Foschini’s takeover of Jet is not anyhow an elimination of rivalry or competition or if the two entities; the targeted and the acquiring enterprise serves the same class of customers or offer the same products, to elude the anti-trust issues or a stretch of monopoly.
The two entities are South African retailers whose services stretched to Botswana shores. Last month local anti-trust body, CCA, received an acquisition proposal from South African clothing retailer, Foschini, stating their intentions to take-over Jet.
South African government’s Business Rescue Practitioners earlier this year after finding out that Jet’s mother company, Edcon, is falling apart, made a decision that Foschini can buy Jet for R480 million. This means that Foschini will add Jet to its portfolio of 30 retail brands that trade in clothing, footwear, jewellery, sportswear, homeware, cell phones, and technology products from value to upper market segments throughout more than 4085 outlets in 32 countries on five continents.
However the main headache for the CCA decision which was released this week, is distinguishing the targeted and the acquiring entity businesses and services.
When doing a ‘Competitive Analysis and Public Interest’ assessment, CCA is said to have discovered that Foschini is classified as a “standard retailer” which targets middle-to-upper income consumers and it competes with stores such as; Truworths and Woolworths. The targeted entity, Jet, is on the lower league when compared to its acquirer, it serves customers of lower classes and is regarded as a discount/value retailer targeting lower income consumers or a mass market. This makes Jet to be in direct competition with Ackermans, Pepkor, Cash Bazaar and Mr Price.
“Therefore, a narrower view of the market is that Foschini through its stores trading in Botswana is not a close competitor to Jet. Additionally, there exist other major rivals who will continue to exercise competitive constraints on the merged enterprise post-merger,” concluded CCA this month.
The anti-trust body continued to explain that in terms of the Acquisition of a Dominant Position, the analysis shows that the acquisition of the target business by Foschini Botswana will result in an insignificant combined market share in the relevant market.
This made CCA reach to a conclusion that there is no case of an acquisition of a dominant position in the market under consideration or any other market on the account of the proposed transaction.
What supports the merger according to CCA is that it is in compliance with regards to ‘Public Interest Considerations’ because the findings of the assessment revealed that the transaction is as a result of the need for a Business Rescue by the target enterprise. This is so because in the event that the proposed transaction fails, it will translate into the loss of the employment positions at the target business.
“On that note the Authority (CCA) found it necessary to ensure that the proposed merger does not result in any retrenchments or redundancies. In light of this, the assessment revealed the critical need to protect the employees of the merged entity from possible merger specific retrenchments/ redundancies,” said CCA.
Before making a determination that the recently proposed transaction is not likely to result in the prevention or substantial lessening of competition or endanger the continuity of the services offered in the relevant market, CCA said it then moved into a concern for public interest which is a protection enshrined in the Competition Act of 2018.
CCA’s concern was mostly loss of livelihood or employment by 126 Batswana workers at Jet stores, stating that possible retrenchments or redundancies may arise as a result of implementation of the proposed merger.
Much to the desire of trade union or labour movements in Botswana and across Southern Africa where the Jet stores are stemmed-who also raised concerns about the retail’s workers job security- CCA subjects Foschini to keep the target entity 126 workers.
“There shall be no merger specific retrenchments or redundancies that may affect the employees of the merged enterprises. For clarity, merger specific retrenchments or redundancies do not include (the list is not exhaustive): i. voluntary retrenchment and/or voluntary separation arrangements; ii. Voluntary early retirement packages; iii. Unreasonable refusals to be redeployed; iv. Resignations or retirements in the ordinary course of business; v. retrenchments lawfully effected for operational requirements unrelated to the Merger; and vi. Terminations in the ordinary course of business, including but not limited to, dismissals as a result of misconduct or poor performance,” said CCA.
CCA also orders that Foschini informs it about all the details of 126 Jet employees within thirty (30) days of the merger approval date. CCA should also know information of when Foschini is implementing the merger, within 30 days of the approval date.
Other conditions include Foschini sharing a copy of the conditions of approval to all employees of the Jet or their respective representatives within ten (10) days of the approval date.
“Should vacancies arise in the target, the merged enterprise shall consider previous employment at one of the non-transferring Jet stores to be a positive factor to be taken into account in the consideration of offering potential employment,” said CCA.
According to CCA, in cases of any job losses, for the Authority to assess whether the retrenchments or redundancies are merger specific, at least three months before (to the extent that this deadline can be practically achieved and in terms of the prevailing and legally required employment practices) any retrenchments or redundancies are to take place, inform the Authority of: i. The intended retrenchments; ii. The reasons for the retrenchments; iii. The number and categories of employees affected; iv. The expected date of the retrenchments.