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Companies must unbundle to survive — analysts

EARLY last year, Delta chief executive officer  Joe Mutizwa announced to the market his intention to sell the group’s shareholding in Ariston Holdings.

His announcement came a few months after political rivals, President Robert Mugabe and Prime Minister Morgan Tsvangirai, had  made up and decided to get into a union.
The economy had also been dollarised, a move that brought price stability.
Delta’s announcement early into unity government seemed surprising given Ariston had been the company’s foreign currency source at the height of an economic crisis.
A few months after Mutizwa’s assertion, other companies hinted on the same route –– exiting non-core businesses.
Imara Asset management CEO John Legat believes the year 2010 could be back to the basics for Zimbabwean companies.
Already, African Banking Corporation Holdings (ABCH) has joined the corporate bunch of companies wanting to stick to what they do best.
An economic crisis characterised by high inflation and foreign exchange shortages saw companies preserving value through acquisitions of non-core businesses.
Cash-rich institutions such as mobile phone group Econet Wireless picked up some valuable non-core businesses during the crisis. Econet snapped up significant shareholding in the then First Mutual Limited and Mutare Bottling Corporation, among other priced tokens.
Although market speculation last year was rife that Econet was selling its cast away bottling company, the group later said it was not selling it to just any investor. And this year Econet seems to be in no hurry to sell.
ABCH CEO Douglas Munatsi says the group is also divesting out of non-financial holdings including 22,3% shareholding in Starafrica, 14,5% in PG Industries Zimbabwe and another 30% in PG Botswana.
Munatsi said: “We are in the process of disposing our Starafrica shares. The sale will be complete by end of February. We will sell to investors with the company’s interest at heart and who will be able to work with our partners in Starafrica where we have an in interest in non-core business.”
Although Munatsi did not say when the group intends to sell its shares in PG, Legat says many business models in Zimbabwe do not work.
He says there is “little or no synergy between subsidiaries of a company”.
Legat explains: “Operationally, doing business has become considerably easier under dollarisation… (this)  implies that good management will quickly spot any inefficiencies in their business models and take appropriate action. “Many business models in Zimbabwe simply do not work in the new dollarised and competitive environment, but managed to get by in a less competitive and inflationary environment. Such companies could well be those whose models were built on import-substitution products.”
Legat believes businesses like these will be closed, sold or remodelled.
“Often there may be little synergy or correlation between each business, largely because group structure was a product of history, driven by former mergers or economic imperatives,” says Legat.
In companies where there is “little or no synergy” between the subsidiaries of a company, Legat hopes it would make more sense to unbundle.
This he says, plays out well for major shareholders willing to remain invested in both businesses while allowing management of a holding company to focus on the core business of the group.
“It further allows management of the spun-off division to act independently.”
Internationally, the unbundling by US cigarette and food group Altria of first Kraft in 2007) and then Philip Morris International (in 2008) had demonstrated the advantages of the approach, Imara noted.
This will not be a new business move for local businesses. 
Starafrica spun off Red Star and listed it separately on ZSE.  Others like African Sun and AFRe spun off Dawn Properties and Pearl Properties respectively.
ZimRe Holdings also spun off its property division and listed a few years back.
Legat said “In Zimbabwe, exchange controls and lack of foreign exchange were such imperatives.”
He feels there is need for companies to undertake restructurings given the need for capital and skills. He also says Zimbabwe still has many opportunities for group companies to unbundle a division (or divisions) that has little synergy with the core business of the group.
One way would be to issue the shares in that division to the shareholders of the main group in the form of a dividend in specie. That division could then be separately listed on the stock exchange. The original shareholders can then decide whether they wish to retain or dispose of the division…Such a strategy more often than not increases overall shareholder value, especially if it is done in a tax-efficient manner.”
And Zimbabwe is just an ideal place for group companies to unbundle a division or divisions that have little synergy with the core business of the group, says Legat. But an unbundling proposal might be met with resistance by shareholders not willing to be diluted.


Chris Muronzi

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