COMPANY COMMENT
Investors blind to risks of huge offshore deals
Two deals, both poisoned chalices, show that major shareholders need to scrutinise target companies more closely
The initial euphoria that greeted the Famous Brands Gourmet Burger Kitchen (GBK) deal shows shareholders underestimated how tough things were about to get. Management must accept most of the blame, but a healthy dose of introspection is needed on the part of investors. Within weeks of the announcement in early September 2016, the group’s share price soared to a record high of nearly R170. But the cracks began to appear soon after. The group’s biggest deal came back to haunt it. The stock is now hovering around R100, or back where it was four years ago. Woolworths investors were also blind to the dangers of huge offshore deals. In 2014, shareholders approved the retailer’s $2bn David Jones acquisition. Years later, the group is reeling from the ill-judged takeover. These deals, both poisoned chalices, show that major shareholders need to scrutinise target companies more closely. Kevin Hedderwick, Famous Brands group strategic adviser responsible for mergers & acquisitions at the time...
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