By Admire Mavolwane
RADAR’s quiet flirtation with the Zimbabwe Stock Exchange looks set to come to an end 22 years after the listing of the building and construction sector-based investment group. Shareholde
rs will, on November 14, be asked to approve a scheme of arrangement proposed by Franconian Zimbabwe Investments (FZI).
The crux of the matter is the approval by members of the acquisition – FZI – of the balance of the issued shares in Radar that this investment company does not currently own. FZI presently controls 4,3% of the total issued share capital of the group and is offering $640 for every share that is not under its wing. This compares favourably with the bid price of $300 per share on the day the scheme of arrangement’s details were made public.
The scheme of arrangement is, according to the offer document, premised on the assumption that “.minority shareholders will not be willing to proceed with the required capital restructuring of the company on an equity funded basis and will not wish to be exposed to the additional risk associated with a possible change in gearing and the concomitant interest rate risk”.
In other words, it is presumed that minority shareholders were/are not prepared to follow their rights, in the event of the company undertaking a rights issue to raise more capital. Already, the majority shareholders representing 66% of the issued share capital have decided to support the scheme, obviously having had the opportunity to discuss with current management its pros and cons.
FZI is now only 10 percentage points short of the requirements to make the scheme effective.
A more democratic process, in our view, would have been for FZI to underwrite a rights issue and, if minorities did not take up their rights, then FZI as the underwriter would take up the shares.
If, after the rights offer, the underwriter still did not have majority control, then an open offer to minority shareholders would be the second option. This would be following the example set by the Innscor/Colcom transaction.
Delta’s offer to Ariston shareholders which is closing today is also based on the same principle: that of respecting individual shareholders’ decisions in the first instance. Under the terms of the proposed scheme of arrangement, once 75% of the votes are in favour of the scheme, it becomes effective.
The dissenting voices will, however, still have “theoretical” recourse to the High Court, but chances of overturning the majority vote will be slim.
“Apart from making available capital to Radar where necessary, FZI will not interfere in the business of Radar, and Radar will carry on trading as before.”
This statement reinforces our rights offer argument as it seems to insinuate that the acquirer has no intention of interfering with the trading operations of Radar but just to make capital available.
Many market analysts, although empathising with the minorities, will not miss the group should it be de-listed. As highlighted in this column before, the group, together with its subsidiary Border, would scoop the prizes for both the most downbeat board commentaries and little or non-existent investor relations.
The company with only 55 million shares listed is highly illiquid and sometimes goes for months without trading. This adds credence to the fact that many analysts and fund managers will hardly grieve on December 13 when Radar’s flag is finally lowered and its name erased from the trading list. Obviously, a lot is contingent on the 10% votes that are not yet in the bag, but we do not anticipate any surprises.
Lastly, we close this week by looking at more exciting things in the form of the full year to August 31 numbers from Cairns, a company that used to have very innovative and exciting adverts in the early 1990s.
These included one for Willards Chips which had the catch phrase “making music in your mouth”‘ and the Sun Jam kid; “nhapitapi chete!”
There was also an ode on the packaging of potato chips that used to be a favourite with kids and started with the words “Zaza the starletti.”.
Although the advertising flair and ingenuity seems to have deserted the company (a pity really), the same cannot be said of management skills and hence the company’s performance.
Group turnover was up 241% to $629 billion on the back of strong demand which saw a 25% growth in volumes and enabled the group to take advantage of pricing opportunities. Operating margins benefited from a number of strategies implemented during the course of the year, improving by four percentage points to 33%.
Consequently, the corresponding profits grew at an enhanced rate of 276%, to $201,7 billion, way above the average annual inflation rate for the period of 174%. A reduction in the interest bill from $11,1 billion to $4 billion, courtesy of improved cashflow generation – $35 billion inflow from operations, against $29 million outflows in the prior year – was a more than welcome boost to the bottom line.
After accounting for taxation and minority interests, attributable earnings of $119,1 billion were realised, a healthy 463% return on 2004. Coming out of the rights offer, the group as expected, could not, like its other siblings Astra and Tractive declare a dividend.
Whilst the future is always uncertain, Cairns looks poised to continue delivering value to shareholders, whilst Radar will be silently going off the radar.