Buyout of South African companies by foreign investors continues apace

Another day and another buyout of a South African company by a cash-flush foreign investor, with the country’s largest glass manufacturer, Consol, being the latest target.

Luxembourg-based glass and metal packaging supplier Ardagh Group plans to acquire 100% of JSE-listed Consol for R10.1-billion, with the latter joining a growing list of South African companies that are being bought by foreign investors. 

The transaction will involve Consol’s operations, which are responsible for providing glass packaging for the beer, wine, spirits, food and non-alcoholic beverage sectors in South Africa, Nigeria, Kenya and Ethiopia. The deal will give the Ardagh Group exposure in the rest of the Africa region. 

The main question is, what are foreign investors seeing in South African companies when the country’s future economic fundamentals don’t look promising because the economy remains in the doldrums and battered by the pandemic? 

“Foreign investors are interested in South African companies because they are cheap and they have a lot of upsides when it comes to their future profits, even though the economy doesn’t look good for now,” said Wayne McCurrie, a senior portfolio manager at FNB Wealth and Investments. 

McCurrie said the pandemic has decimated the value of shares on the JSE — making the overall market look cheap, paving the way for opportunistic/bargain purchases by foreign investors. 

Exodus of companies from the JSE 

As South African companies are acquired, they are also taken private and delisted from the JSE, creating an exodus of iconic businesses from the local bourse. The JSE’s universe of listings is shrinking, affecting the local bourse’s business and revenue model of relying on listing fees paid by companies. 

A Johannesburg-based analyst said the lack of new listings on the JSE is an indication that companies are not willing to go public because of a weak economy and government policy that is not pro-growth, investment and job creation. 

Dutch brewing company Heineken has not been deterred by South Africa’s more than five bans on alcohol sales since the start of the pandemic as it recently expressed an interest in acquiring Distell, the maker of brands including Klipdrift brandy, Savanna cider, and JC le Roux sparkling wines for R40.1-billion. Distell will delist from the JSE once the deal is completed and has passed a minefield of Competition Commission requirements. 

Logistics giant Imperial is also involved in corporate action as Dubai-based DP World plans to buy it for R12.7-billion. Imperial will also be delisted from the JSE. 

Consumer goods giant AVI has received an offer from US-based Mondelēz for parts of its business (mainly the snacks business that manufactures Bakers and Provita biscuits). Although it’s not clear if AVI will remain listed on the JSE, the broader plan might include the remaining parts of the company being broken up and sold off. 

Shareholders of Liberty in October unanimously voted in favour of Standard Bank’s offer to acquire the remaining 46% in the insurance and property business that it did not already own. Liberty will start the process of delisting from the JSE. 

Small-cap market 

In the small-cap space (companies with a small market value on the JSE), there has been more corporate action and buyout activity. 

According to Allan Gray’s Nadia van der Merwe and Stephan Bernard, during 2020 there were 19 company delistings, 16 of which were smaller than mid-cap. In 2021 to date, there have been 11 company delistings, with 10 smaller than mid-cap. 

Technology firm Adapt IT plans to delist from the JSE after it accepted a buy-out offer from Canada’s Volaris. Services group CSG Holdings and electronic communication company Alaris disclosed buyout offers that will lead to both delisting from the JSE. Real estate firm Tower Property Fund is considering a takeover offer from RDC Properties, a multinational African property and investment group listed on the Botswana Stock Exchange. Spanjaard, which manufactures and distributes lubricants and chemical products, plans to repurchase all shares in the company and delist as it doesn’t see any merits of being listed on the local bourse. 

Brian Joffe’s investment group Long4Life recently received an expression of interest from a local entity, which might result in the company being taken private. 

Grand Parade Investments (GPI) is finalising the sale of its Burger King operations, which will leave the company with minority investments in Sun International-controlled gaming assets including SunWest. While GPI’s focus is on concluding the sale of Burger King operations, a strategy review will be under way once the deal is concluded. The strategy review will weigh up the merits of GPI remaining listed. 

PSG’s Zeder Investments said in April that it “had received several approaches from third parties interested in acquiring a number of Zeder portfolio investments”. Zeder owns Capespan (a distributor, marketer and producer of fresh produce) and The Logistics Group (a logistics provider that supports Capespan). 

Zeder, which last year finalised the sale of its shareholding in Pioneer Foods to US giant PepsiCo in a deal that was worth R26-billion in its totality, is another investment company that might be ready to be taken private. The group is already under cautionary due to approaches for some of its remaining investments. DM/BM