Caxton takes exception to Mpact’s ballooning debt

Unrelenting in its pursuit to acquire Mpact, Caxton said it is concerned by the debt levels at the industrialist group — where the publisher already commands a 34% stake — announcing it is pursuing a challenge on aspects of the packaging manufacturers corporate governance.

“The group’s investment in Mpact Ltd remains a focus and though Mpact reported good growth in the year-end to December, the levels of debt in the company are of concern,” Caxton said in a statement on Thursday.

“Caxton is in the process of challenging a number of aspects of Mpact’s corporate governance, which are similarly worrisome.”

Early in March Mpact reported its net debt of R2.33bn had increased from the R1.76bn of 2021 mainly owing to cash outflows in respect of capital expenditure investments of R1bn, as well as increased working capital.

Its net finance costs rose close to one-third to about R184m because of increased average net debt and higher interest rates.

Caxton’s comments about Mpact come a week after the takeover special committee (TSC) barred it from making public announcements about the acquisition of the latter without the approval of regulators.

Caxton has had its sights on Mpact for years but negotiations over a full takeover have failed, leading to a legal battle.

Mpact’s board previously declined to support either a joint or a separate notification for a merger, saying Caxton, among other things, had not disclosed a proposed offer price.

At the heart of the matter is the issue of Caxton not trying to take over the company without making the mandatory offer to Mpact’s minorities, which would be triggered if it took its stake to 35%. It is doing so by trying to get competition regulators to allow it to file the deal as a merger.

Caxton, which has a R3.5bn market capitalisation, has alleged Mpact is soliciting support from Golden Era to oppose its merger and that it filed “secret representations” and affidavits with competition authorities. 

The R4.2bn Mpact, which was spun out of Mondi and listed on the JSE in 2011, has previously denied claims by its largest shareholder that the board has been hostile to a proposed merger and failed to disclose material information to shareholders, accusing Caxton of a lack of transparency.

On Thursday Caxton reported revenues grew more than 25% owing to price increases it implemented to recover the cost increases of raw materials and operating expenses.

Labelling the input cost increases as “unprecedented”, Caxton said the local and international paper and board mills were oversubscribed and access to supply was limited, combined with increased freight rates.

Moreover, international mills were faced with big energy cost increases as the fallout from the Russia-Ukraine conflict took hold, which meant most European mills applied energy surcharges.

Group profit from operating activities after depreciation and amortisation was up 39.8% to R382.1m while headline earnings per share rose 36.4% to 90.7c from 66.5c. Its net asset value also rose 4.6% in the period.

The Johannesburg-based publisher said though consumer demand has held up well in the first six months there is a distinct possibility that with the high levels of inflation and continued load-shedding, a lacklustre growth outlook will exist in a recessionary environment.

Caxton’s share price closed 5.33% higher at R10.27 on Thursday.

gumedemi@businesslive.co.za