How far-fetched is this scenario, a few years hence? The competition tribunal is green-lighting the takeover of Pick n Pay by Shoprite — looking past the obvious (and no doubt valid) competition concerns to ensure that thousands of jobs are saved.
This scenario was cited by an investment industry contact, who told me it was actually mooted more than 15 years ago by an executive in a top fast-moving consumer goods company. Though Pick n Pay still battles on, the scenario is probably more pertinent at present. For one thing, the founding Ackerman family’s control of Pick n Pay is slipping away.
That said, I reckon this week’s sale of a chunk of Pick n Pay shares by the Ackermans is probably a case of too little too late. For the record: The Ackerman family let go of 64-million Pick n Pay shares, reducing their voting interests from 49% to 36.8% and their economic interest from 26.7% to 18.2%.
While they cash in a nifty R1.6bn to deal with debt accumulated in backing Pick n Pay’s huge rights offer last year, the supermarket group is probably no better off in terms of its strenuous turnaround effort.
Had the Ackerman family relinquished their (might I add, artificial) control of Pick n Pay 15-20 years ago, the business might have easily avoided the current pinch. One might well imagine if an international retailer such as Walmart or a retail-savvy investment firm had gained control — or at least influence — at Pick n Pay, there might have been a more inspired effort to stave off the market-share-conquering antics of leaner and meaner (and arguably street-smarter) Shoprite.
The most recent results from Pick n Pay show a core business still in tatters, with breakeven pencilled in only for financial 2028. With no income flows from Pick n Pay for at least three years, one might understand any urgency by the founding family in dealing with debt being rolled up. Put more succinctly by a portfolio manager: “I believe the decision to sell at this point is driven largely by the high valuation of the Boxer business, coupled with the recognition that the Pick n Pay turnaround is a multiyear project that has a degree of execution risk.”
The shares were quickly snapped up by, I assume, institutional shareholders — and I wonder if they were more enamoured of the Boxer growth story or the turnaround prospects in the core supermarket business.
Still, it’s difficult to ignore the whiff of desperation to the book build share placement, which was settled at a discount of more than 6% at R25.50 a share. One might easily get the impression that the Ackerman family believe the Pick n Pay share price is full in the short term. Officially, “the Ackerman family remain fully committed to Pick n Pay, Sean Summers and his leadership team, as well as to the company’s turnaround plan and growth strategy”. That means the family will continue to be an anchor shareholder and long-term investor in Pick n Pay.
That might be perceived as disappointing, with the family’s recent track record as a custodian of the Pick n Pay business not being impressive at all. Perhaps it’s too late to hope that a new, influential shareholder can be ushered in at Pick n Pay. For now, shareholder hopes remain firmly pinned on veteran retailer Summers, as the CEO, dragging Pick n Pay’s core business back to viability. There is little room for error in a low-margin business.
One shudders at the thought of Shoprite temporarily giving up some margin to compete even more intensely with a vulnerable Pick n Pay.
Staying on the topic of family businesses, the Rupert family-controlled Reinet Investments might seem a happier setting for investors, relatively speaking. But it won’t be lost on shareholders that the exit from British American Tobacco (BAT) last year was not optimally timed, what with the cigarette maker’s share price appreciating by more than 40% since then. Reinet, of course, is also in the process of selling its major stake in UK financial services business Pension Insurance Corp (PensCorp), by far its biggest investment.
What exactly will a cash-flush Reinet do next year? The group is certainly well positioned to snatch well-priced opportunities if that long-overdue correction in US equity markets finally happens. A sizeable special dividend would not go amiss either … speaking for myself, of course, noting that the hairline crack in my favourite padel bat is rapidly widening.
There’s also a bit of fun to be had in viewing Reinet’s portfolio without BAT and PensCorp. Setting aside for a moment that cash pile of more than €5.5bn, a considerable store of value will lie, believe it or not, in the old Lehman Brothers merchant banking business, which was acquired in 2009 and renamed Trilantic Capital Partners. Trilantic is worth just €310m according to the latest interim report, but Reinet has €985m realised and unrealised gains from a €585m investment. Hardly a rocket, but if you banked on Reinet to preserve your capital at all odds, Trilantic has done its duty.
Other fringe investments are the Prescient China Fund (which has more than doubled in value to €164m) and the small flutter on SPDR Gold shares (now worth a not insubstantial €70m). A more recent Reinet investment, in the tech-flavoured Coatue funds, has enjoyed a brisk couple of years, with the initial investment of €157m growing to €232m (with an additional €38m already realised). Maybe a new-look Reinet won’t be the most boring “funds within a fund” investment after all?
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.