The details surrounding Sefalana’s Rights issue have finally come full circle with the latest circular to shareholders clearly outlining what the company intends to do with the capital raised.
In October Sefalana announced that it intends to raise capital by way of a Rights Issue. While the details were sketchy at the time of announcement, shareholders were told the capital raised was to fund a business acquisition in Lesotho. However the latest details from the company show that the capital raised will be used to finance two transactions.
“At the Meeting of the Board of Directors of Sefalana held on 26 October 2016, the Board determined that the stated capital comprising ordinary shares would be increased from 222,868,186 shares to 250,726,709 shares. The Directors have thus caused the stated capital to be increased.
The Offer Shares are to be offered to existing Shareholders by way of a Rights Issue,” the group said in a letter to shareholders before revealing that the capital raised by this issue is to be used to finance the acquisition of the Lesotho Business (TFS), to make an investment in a South Africa Consortium, to assist with future acquisition opportunities, to fund property acquisitions relating to these Transactions, and for other working capital requirements of the Sefalana Group.
The group further revealed that the combined consideration for the transaction will be approximately R280million (P 219 million). The remaining proceeds, being P132 million, from the Rights Issue will be used to fund additional store openings in Lesotho (P40 million), further acquisition opportunities and purchase of related property (P80 million) and supporting working capital purposes (P12 million) within the Sefalana Group.
While the Lesotho transaction became a matter of public knowledge last week, details surrounding the deal were scant. In the latest circular, the group has revealed that Sefalana, through its 95% owned Lesotho subsidiary, Sefalana Trading Lesotho (Proprietary) Limited has entered into an agreement to purchase specified assets belonging to TFS, an existing FMCG business based in Maseru, Lesotho. The business operates from a single location and employs approximately 95 staff members.
TFS operates in Maseru, Lesotho, selling a wide range of fast moving consumer goods (FMCG). It offers a full range of edible and non-edible grocery products including perishable (frozen and refrigerated) and non-perishable food, household cleaning products, toiletries, catering supplies, tobacco products, over the counter patent medicines, as well as a limited range of general merchandise such as household utensils and crockery.
It is the largest cash and carry in Lesotho and has established a strong relationship with its customer base. Through this Lesotho (TFS) Acquisition, Sefalana will immediately have a significant presence in the Lesotho market in a short space of time and intends to continue to grow that business.
For the Lesotho transaction, Sefalana expects to pay as much as R80 million for the acquisition. This figure is made up of the specified assets of Lesotho business which stood at R23 million and the value of the inventory was estimated at R30 million at the time the deal was being made. In addition, the group will pay R27 million in respect of intangible assets attaching to the Lesotho business, including, but not limited to, customer relationships and goodwill.
“The Lesotho Transaction allows the Sefalana Group to further expand into the Southern African region building on the remarkable success of Metro Namibia operations and in line with its overall Sefalana Group strategy to focus on regional growth of its FMCG segment. This Lesotho Transaction will accelerate the Sefalana Group’s expansion plan and enable it to be a significant player in the Lesotho market in a short space of time.
The Sefalana Group turnover is expected to grow by over BWP 300 million in the year following the acquisition. This is expected to translate into additional profit after tax of over BWP 7 million in the first year,” the group said.
In the second transaction that was kept under wraps, Sefalana group will take a significant stake in a large consortium in South Africa. According to details contained in the circular, it is a consortium of an existing retail and wholesale store network operating the business of FMCG trade across South Africa. The business operates from multiple locations and currently employs approximately 450 staff members.
The Consortium wishes to significantly expand its presence across South Africa and will acquire a number of target stores (approximately 30) commencing in January 2017. The Consortium will consider further expansion in the coming years as suitable targets present themselves for acquisition.
The Consortium operates from a head office in South Africa selling a wide range of FMCG. It offers a full range of edible and non-edible grocery products including perishable (frozen and refrigerated) and non-perishable food, household cleaning products, toiletries, catering supplies, tobacco products, over the counter patent medicines, as well as a limited range of general merchandise such as household utensils and crockery.
It is also one of the largest buying groups which supply wholesale and retail chains in South Africa and Botswana. The Consortium hopes to strengthen its presence in the South African market and become one of the top ten largest businesses in the FMCG sector. It is anticipated that Sefalana’s investment will amount to around 25% of the share capital of the Consortium. The consideration for the investment in the consortium’s business by Sefalana is estimated at R200 million. This investment is expected to translate for the Sefalana Group, an additional profit after tax of over P19 million in the first year.
This is the second time in two years that Sefalana turned to the stock market and its shareholders to raise capital to fund its expansion plans. When Sefalana entered the Namibian market in 2014 by acquiring the Metro chain of 12 stores in the FMCG trade sector, it facilitate the entry into this market by undertaking a Rights Issue program in May 2014 in which it raised P255 million. The Rights Issue program was significantly oversubscribed at 151%.
The Metro business was a R750 million turnover business at the date of take over. Two years on, it generates just under R1.5 billion in revenue and contributes approximately P40 million towards the Sefalana Group earnings before interest, tax and amortization. This now represents just under 20% of Sefalana Group profitability demonstrating the success of the Metro acquisition.
In the latest round of raising capital, the group announced that the 27,858,523 new shares in the capital of the Company will be issued in a ratio of 1 Offer Share for every 8 shares held by existing shareholders at a price of P12.60 per offer share, representing a 10% discount of the current Sefalana share price.
According to the FMCG giant, the Rights Issue has not been underwritten because irrevocable undertakings have been obtained from major shareholders, who have undertaken to exercise their rights in respect of Offer Shares that they are entitled to and to subscribe for any excess shares that remain after the Rights Issue allocation has been made. The Board of Sefalana has obtained dispensation from the BSE that the Rights Issue not be underwritten, as the Issue will be fully subscribed.
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.