Building supplies group Distribution and Warehousing Network (Dawn), a former market darling which, just 18 months ago, was able to raise R358m in a rights issue, could be snatched up in an outrageous low-ball offer of R6m.
The buyout offer pitched at 1c a share shocked most market observers on Tuesday — notwithstanding the brittle trading conditions prevalent in the building and construction industry.
At the end of March this year Dawn stated its tangible net asset value at more than 50c a share.
“The value destruction for shareholders has been far worse than Steinhoff International [which is widely regarded as the major blowout on the JSE in recent years],” said Opportune Investments CEO Chris Logan.
Logan, whose company used to own Dawn shares but has since sold out, said the rock-bottom buyout price pitched for Dawn needed to be contextualised by the fact that the company held two rights issues — one in 2009 to raise R720m at 720c a share and another in 2017 for R358m at 100c a share.
One investment manager, who asked not to be named, was surprised most Dawn shareholders were supporting the offer. “What is the incentive for shareholders at 1c a share? Surely Dawn is worth more if its assets were sold.”
The unnamed company making the 1c-a-share offer comprises former long-serving Dawn CEO Derek Tod and Luis Gonsalves Baeta. The buyers have been given a period of exclusivity — even though Dawn is aware of other parties that have expressed an interest in the company.
Tod declined to comment further on the offer. “It’s a process, and we’d prefer not to comment at this point.”
Tod founded and reverse-listed Dawn in the late 1990s and embarked on an acquisition spree that built a multibillion-rand building supplies empire that spanned hardware, sanitaryware, plumbing, kitchen, engineering and civil products as well as manufacturing pipe and fittings.
Tod — who still owns about 11-million Dawn shares — retired in 2015 when the company was starting to feel the pinch from lower activity in the building sector and increased competition in its niches.
Dawn provides an array of building supplies brands through operations such as Saffer Bathroom & Plumbing, WHD Hardware & Tools, ProMax, Incledon (pipes, tubes and valves) and DPI Plastics (water reticulation and drainage pipes).
In 2014 Dawn, which then still owned the iconic Cobra bathroom brand, generated revenues of about R4.4bn.
Even though the 1c-a-share offer is well below Dawn’s recent share price on the JSE, 60% of the company’s shareholders have already given irrevocable undertakings to support the buyout scheme. The shareholders who provided irrevocable undertakings were not identified.
At last count, Imperial Holdings-aligned empowerment venture Ukhamba Holdings, listed investment group RECM & Calibre (the underwriter of the R358m rights issue in April 2017) and Coronation Fund Managers were the three biggest shareholders in Dawn. The surprisingly high level of irrevocable support for the offer suggests Dawn is in a tighter position than was indicated in its recent trading update in August.
RECM & Calibre executive director Jan van Niekerk confirmed giving an irrevocable undertaking for the offer.
“If there was anything else to be done at Dawn we would have done it. But it is beyond our scope … and we did consider all options.”
Rationalising the 1c-a-share offer, Dawn said it faced liquidity constraints, notwithstanding progress made with the turnaround strategy.
Dawn’s shares, however, flitted between 2c and 3c on the JSE on Tuesday. This would normally indicate that the market was expecting a rival bid with a higher offer to eventually materialise.
But Dawn has undertaken to grant the company owned by Tod and Baeta exclusivity for a 120-day period.