Reinet, the Rupert family-controlled investment vehicle, has been the epitome of boring (not that it’s such a bad thing) since launching in late 2008. The group’s results to end-March this year declared: “Reinet’s NAV of €6.9bn reflects a compound growth rate of 9% per annum in euro terms, since March 2009, including dividends paid.”
You won’t get a better example of a “steady Eddie”. In the past six months, though, there have been two game-changing transactions involving more than three-quarters of the nearly €7m portfolio. Developments make me want to adapt Ernest Hemingway’s old quip on business: “You unlock value gradually, then suddenly.” Reinet, of course, could easily have trundled on as a capital preservation vehicle — not terribly exciting but as reassuring as a cup of coffee. The group was always a cash machine with its minority stake in British American Tobacco (BAT), sold about six months ago, blazing a trail of generous dividends from the start.
Interestingly, Reinet does not elaborate on the rationale for selling the BAT stake in its latest annual report, leaving shareholders to mull the cash pile against the increase in BAT’s share price since the stake was sold. Now here’s the thing: Reinet, once the proposed sale of its 49.5% stake in UK financial services specialist Pension Insurance Corp (PensCorp) is finalised, will be sitting on net cash of more than €5bn. That’s not quite as much as the €8.3bn swishing around in corporate cousin Richemont, the Rupert family-controlled luxury brands conglomerate. But it’s an impressive war chest.
Reinet and Richemont’s combined cash holdings could — and I stress this is only for context — buy about 5% of luxury goods giant LVMH. With Remgro sitting on cash-at-the-centre of almost R7.5bn, you might also think the Rupert family is expecting the worst to play out in the markets in the months ahead — and that there might be some well-priced opportunities to weigh up.
To be honest, as a Reinet (and Remgro) shareholder I was surprised to see the much-rumoured buyout of PensCorp actually materialising. The business has only recently started kicking out dividends, and growth prospects looked fairly solid for the medium term. I would have thought PensCorp was a keeper — unless Reinet got an offer it could not refuse. Athora Holding UK’s offer for PensCorp seems reasonable rather than resplendent. The market seemed to expect Reinet (and fellow shareholders) to command a richer price for PensCorp. Reinet shares, once talks around the PensCorp sale were confirmed, surged to R615 on the JSE last week, before beating a hasty retreat when the deal terms were detailed.
A buyout offer to minority shareholders and delisting do not seem that far-fetched
Reinet’s portion of the £5.7bn sale (£5.9bn with accrued dividends) will amount to between €3.4bn and €3.5bn. That’s a little shy of the €3.7bn valuation Reinet placed on the business in March. I’m not going to quibble about the price tag. Reinet has almost tripled its overall investment in PensCorp in about a dozen years, excluding the £426m paid over in dividends. What I am interested in is what happens to Reinet now. Officially, Reinet “intends using the proceeds from this transaction for its ongoing investment activity”. Well, that could mean many things. What is abundantly clear is that Reinet’s commitments to its handful of private equity and specialist investment funds will not tap out the cash holding.
I make the remaining commitments on funds in the portfolio to be just more than €400m, with the most significant of these €139m earmarked for TruArc Partners and €105m to the tech-aligned Coatue funds. Naturally, shareholders will be weighing up the prospect of Reinet making one or two new large investments. Personally, a compromise would suit — a special dividend that leaves enough cash to pursue new opportunities. I would be disappointed if Reinet buys into more specialist investment vehicles, rather than strongly backing a new investment in a company or venture such as PensCorp.
Once PensCorp disappears from Reinet’s portfolio, the main investment premise will revolve around Trilantic Capital Partners (€424m), TruArc (€354m) and Coatue (€198m) as well as the Asian investments (€178m). Reinet’s listed investments, such as Grab Holdings, Twist Bioscience and SPDR Gold Shares are not really big enough to move the needle, though they might be more visible with PensCorp and BAT out of the portfolio.
Ultimately, I cannot see the market keeping a narrow discount on the new-look Reinet, which I suppose does offer an opportunity to embark on another serious share buyback exercise. Optimistic shareholders in Reinet will be hopeful that the more exciting fund investments such as TruArc and Coatue will kick up a few big winners. TruArc, according to Reinet’s annual report, continued to perform well, managing to exit one significant investment and return not insubstantial proceeds of €55m.
Coatue is headed by well-known tech investor Philippe Laffont, who believes there is a substantial universe of potential investment opportunities and that the market could produce significant structured capital opportunities. Reinet is invested in the Coatue Structured Offshore Feeder Fund and the Coatue Tactical Solutions CT Offshore Feeder Fund. These funds focus on privately negotiated transactions that leverage Coatue’s sector experience and platform resources to source proprietary transactions. But it’s likely to be a while before the funds find traction. With market interest in Reinet-lite likely to diminish, there will be the inevitable question whether the group has run its course. A buyout offer to minority shareholders and delisting do not seem that far-fetched.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.