THE PSG GROUP, unable to shrug off a 30 percent discount that it trades at on the JSE, plans to delist and extract “enormous value” for shareholders through unbundling, chief executive Piet Mouton said yesterday.
The group was started in 1995 by its chairperson, Capitec Bank co-founder and well known South African entrepreneur, who has in the past been dubbed by investors as “boere Buffet”, Jannie Mouton.
PSG's share price shot up 21.28 percent to R99.24 after the announcement, which immediately narrowed the premium between the share price and the delisting proposal. The group has a market capitalisation of R18.38 billion.
PSG plans an offer to shareholders at R23 a share, cash, and the unbundling of its stakes in PSG Konsult, Curro, Kaap Agri, CA&S and 25.1 percent of Stadio.
The combined value of the unbundlings and the cash repurchase as at February 25, 2022, would amount to about R114 per share, representing a 38.4 percent premium to the closing PSG share price at that date of R82.31.
Mouton said in a telephone interview yesterday that the proposals took some time to formulate, but PSG's board really put their heads down to see how they could create more value for shareholders when the discount that PSG traditionally trades at, compared with its sum-of-the-parts value, widened again, despite the unbundling of PSG's stake in Capitec in 2020, which was also aimed at narrowing that discount.
“At every single meeting I have with shareholders, at least half the time is taken up dealing with the unlocking of value,” said Mouton.
He said they had held discussions with a number of the major shareholders who appeared interested in the proposals and indicated that they might support the proposals, once more structured proposals were formulated.
He said one major negative sentiment he had encountered was that PSG was joining a growing number of companies delisting from the JSE, but countered that in PSG's case, “the premium is real”.
He said the PSG Group would be left much smaller after the delisting, comprising about a 20 percent stake in Stadio, an investment in Zeder worth between R1 billion to R1.2bn, and the remaining unlisted investments including Evergreen retirement villages, OptimumSA home schooling and Energy Partners.
He said although he would always be involved with PSG, and he sat on the boards of some of the unlisted companies, he might also pursue other opportunities post the delisting.
The offer is not being made to PSG's shareholders that include its management, founders and family members.
The unbundling of Capitec unlocked R21bn of value for PSG shareholders, but the group had continued to trade at a 30 percent discount.
Investment holding companies have fallen out of favour with investors globally and trade at substantial discounts to fair value with the average discount being more than 40 percent.
In addition, investors seem to prefer to be directly invested in operational companies, rather than through an investment holding entity.
“There are probably numerous other reasons for investment holding company discounts, but most notably investors don't like the permanent capital and tax trap inherent to investment holding companies,” said Mouton.
“The large investment holding company discounts negate one of the primary reasons to be listed, being one's ability to raise capital in the equity markets,” he said.
For example, if an investment holding company wishes to raise R100 while trading at a 30 percent discount, it would be worth R70 immediately thereafter – serious value destruction!
“This typically leads to investment holding companies hoarding cash for future transactions, thereby becoming more conservative.
“But cash diminishes returns and combined with greater conservatism in managing the portfolio, reinforces the discount principle,” said Mouton.
Taking PSG Group private should also “significantly alleviate the regulatory compliance burden” of being listed.
“The companies that we are unbundling all have exceptional management teams, experienced boards, are well capitalised and have exciting growth prospects. We believe they will benefit from greater liquidity and their chances of being included in indices should improve significantly as a result of their larger free float,” he said.
BUSINESS REPORT ONLINE