Louis van der Watt of Atterbury Property Fund (APF), the single largest shareholder in RMB Holdings (RMH), has long been critical of the costs associated with a listing on the JSE.
The recently announced plans by RMH for an odd-lot offer will do little to change this view.
If all targeted shareholders accept the 59.13c a share offer, RMH will scoop up a total of 3-million shares. That puts the value of the transaction at a rather minuscule R1.8m and makes the associated expenses of R793,000 look totally out of kilter. What it means is that RMH is spending almost half of the R1.8m required to actually buy back the shares on expenses. That’s just the sort of figure to make you fret about listing costs.
For Van der Watt, it probably helps that the biggest single expense — transaction adviser and transaction sponsor fees of R370,000 — goes to a company called Pallidus, in which he holds an indirect ownership stake.
Of course, that’s of no use to the RMH minority shareholders who fall outside the terms of the odd-lot offer.
However, spending almost half the value of a transaction on expenses should not be interpreted as indicative of the general cost of a listing. Last year Sygnia managed to do an odd-lot deal that cost just R235,000 and the year before, Adcorp’s cost was only R413,000. RMH is evidently going for the deluxe version.
One good thing is that the offer is certain to be a huge success. Remember, only a few months ago, the same shareholders were being offered just 47c a share in a deal intended to secure control of RMH by APH and the AttBid consortium. The plan was to gain control and delist the company, whose main asset was 38.5% of APH and R230m cash or near-cash.
It turns out that the offer, described as lowball, was indeed too low. APH and the AttBid consortium ended up with just 56%, way off the 90% needed to delist the company.
So here we are with an odd-lot offer aimed at 40,554 shareholders (79.26% of all shareholders) who each hold 458 shares or fewer. Their combined holding is only 0.22% of the total shares in issue, so even if it’s 100% accepted it will make no difference to the control situation at RMH.
The trick with odd-lot offers, and what generally guarantees their success, is that shareholders have to say no if they don’t want to sell the shares. In this instance, silence does lend consent. So, it’s very likely RMH’s shareholder numbers will be reduced to just under 11,000 from 51,164.
According to the circular outlining the deal, the RMH board is going to these rather extravagant lengths in a bid to cut costs. “The annual cost of servicing such a large shareholder base is significant and is not considered efficient or cost effective for RMH to continue to manage,” says the circular. Corporate actions requiring shareholder approval are also more expensive due to processing large numbers of shareholder proxies and votes. And it’s not just corporate actions; ongoing administrative costs should also be reduced.
The 59.13c a share offer is the weighted average price at which the share traded in the 30 days up to September 18, topped with a 10% premium.
The odd-lot announcement helped prop the share to a high of 60c before easing back to 58c. RMH has been trading above 50c for the past few months, evidence that investors were not spooked by comments made by Gideon Oosthuizen at RMH’s AGM in March that they would be trapped in a nondividend paying company.
Oosthuizen, who is a director of APH and has since been appointed CEO of RMH, warned RMH shareholders at the meeting that all the company’s funds would be used to fund property development, with nothing left to pay dividends. “We are thinking long term, we are thinking development. Those two things typically require capital rather than sending out dividends to shareholders on a regular basis.”
RMH’s minority shareholders didn’t blink. When the 47c offer closed, the share didn’t collapse. In mid-August it started to track upwards, reaching a high of 58c before the odd-lot announcement. Albie Cilliers, the single largest minority shareholder with just more than 20%, tells the FM he remains happy with his investment. He reckons the share price is supported by expectations of some kind of corporate action. The odd-lot offer plays into these expectations because, as the circular said, it reduces the costs of corporate action.
But even without corporate action, RMH looks attractive, says Cilliers, referring to a number of recent property sales by APH. “They’re getting back to what they’re good at — developing assets, then selling them.”
Of course, whether this means RMH will have cash to pay dividends or buy out shareholders is another matter.
