In my rush to get from the Fish Hoek Tennis Club to distant Edgemead for the first league game of the summer season, I forgot my trusty racquets. So I could blame the racquet I borrowed — way too heavy for my delicate touches — for the fact I could only eke out a draw. I could also claim the persistent blasts of the southeaster conspired against us.
What’s more, our old Edgemead mates Lance and Gary, who, like me, are known to take to mid-match hops rather than maintain disciplined competitive strides, were unceremoniously (and inexplicably) dropped. But when you butcher no fewer than seven critical set points, any excuse is going to ring awfully hollow.
Fortunately, revitalised chemicals group Omnia got a good result quickly. The group, which needed a rescue rights issue just seven years ago, last week advised shareholders that Solar Industries in Nagpur, India, had pitched a R134.50 cash buyout offer. There is no scrip alternative, but this probably won’t be an issue considering the heady earnings multiple of Solar’s shares. The offer values Omnia at R22bn — an astounding change from just before the 2019 rights issue, when the group carried a market value of R2bn.
But is the offer good enough?
Now the big question is whether Solar’s offer, pitched at a 36% premium to the recent volume-weighted average price (VWAP), properly factors in Omnia’s solid prospects and future dividend flows. Omnia has a few long-term backers, including the Public Investment Corporation (PIC), M&G Investments and Allan Gray, that have supported it through thick and thin. These big shareholders have been well rewarded in recent years by Omnia and its special dividend regime.
Some might require more persuasion to cash out of one of the few compelling growth stories on the JSE. But Omnia has already received indications of support for the proposed buyout from shareholders representing just shy of 20% of the issued shares. Omnia pointed out that the Solar offer compares favourably with the valuation multiples of global peers and “the premia observed in precedent JSE take-private transactions”.
Omnia does fit snugly into Solar. The Indian group’s operational focus spans industrial explosives (for mining, infrastructure and construction across 90 countries) as well as defence and aerospace.
I have to wonder if Solar had a gander at AECI … and maybe even had a glance at Reunert, which has a substantial defence products offering. The door remains open, I see, for a competing offer … as long as it comes in at a premium to the Solar price (so a minimum pitch of about R138 a share). Overall, I’d give Solar’s tilt a reasonable chance of success. Then again, shareholders keen to exit will be praying that the local competition authorities don’t wrap the transaction in confounding complexities, causing consternation in Nagpur.
Wind of change at Mahube
Sticking with potential deals, renewable energy investor Mahube Infrastructure, which has stakes in solar and wind power, cautioned on a potential buyout transaction. This is the second attempt to buy out minority shareholders within nine months. Late last year two asset managers, Creation Capital and Mergence Investment Managers, combined forces through a special-purpose vehicle, Sustent Holdings, to move on Mahube.
Acting in concert with Creation-managed Specialised Listed Infrastructure (SLI), which holds a 34.9% stake in Mahube, Sustent pitched a buyout offer of 550c a share to minorities at a premium of about 30% to the 30-day VWAP. This was still at a deep discount to the tangible NAV, which was then hovering between 991c a share and R10.73 a share. The pitch price was later raised to 600c a share, but shareholders — most notably the PIC, with a commanding 44.37% stake — turned the offer down.
Last week a consortium headed by group CEO Gontse Moseneke offered to buy all the Mahube shares not already owned by the consortium. Discussions are under way, but so far no indicative buyout price has been tabled. I’d assume Mergence and SLI would want a price well north of their 600c offer to walk away from Mahube. I’d assume the same for the PIC, which has not been named as part of the consortium.
A lighter-than-air profile
Currently, Mahube holds equity interests in two wind farms (19.7% in Noblesfontein and 9.9% in Dorper) and small minority stakes in three solar farms. These generate about 400MW. To say that Mahube, which listed as Gaia in late 2015, lacks critical mass would not be an understatement. Since listing, the assets have generated uneven dividend flows and a project or two has come under financial stress at times. Still, Mahube reflected a tangible NAV of more than R10 a share in its most recent financial statements — nearly double the bid price.
There are a few things to consider here. Mahube does offer investors a rare, pure conduit to proper renewable assets. The problem, however, is that Mahube does not have the balance sheet or ability to raise fresh capital in the market to bulk up the portfolio into a more compelling offer with more reassuring dividend flows. And all the while overheads continue to rise faster than inflation year after year.
If Mahube is taken private there will be more flexibility in restructuring the portfolio. But Moseneke’s consortium will have to stump up a lot more than the 600c a share offer made last year.
For the record, in the last annual report, Moseneke noted that the group had “observed increasing scope for value creation” in the group’s assets, with opportunities for “greater collaboration and the optimisation or reconfiguration of existing structures”. He added tellingly that “in this context, prospects for the consolidation or combination of operations and assets with suitably aligned peers in the market have begun to emerge”. Moseneke stressed these initiatives were aimed at creating larger, more resilient platforms, better positioned to attract capital and ensure greater scale across the portfolio. There you have it!
