Nampak now opts to sell its glass division
An ‘unmitigated disaster’, one analyst describes the deal
Six years after telling the Competition Tribunal it regarded glass manufacturing as one of its core businesses and wanted to expand it, Nampak has told shareholders it is selling its glass division.
As the competition authorities are unlikely to agree to a deal with the most obvious buyer, Consol, analysts say the business could end up back in foreign hands.
In November 2011, Nampak spent R938m to acquire the 50% of its glass business it did not own from joint venture partner, German-based Wiegand-Glas.
At the time Nampak CEO Andrew Marshall said the acquisition was part of a strategy of "investing in our core businesses where we believe we have competitive advantages".
Over the past six years, the company had spent the equivalent of its market capitalisation on capital expenditure and had nothing to show for it
It was planning to invest up to R4bn over the following five or six years in building new glass furnaces in SA and elsewhere on the African continent.
In a trading update released on SENS, the Nampak board informed shareholders it had decided to sell the business.
"To ensure the long-term profitability of glass and to address the operational skills gap, the board has resolved to approach packaging industry players to invite proposals for the sale of the glass business," it said. Exploratory discussions had been held with a number of strategic partners and a formal corporate finance disposal process was in process, it said.
During a teleconference with analysts after the announcement, Nampak management indicated it did not have the necessary expertise or scale. "It was an unmitigated disaster," said one analyst who added it was quickly apparent Nampak struggled without the expertise of the German partner. Over the past six years, the company had spent the equivalent of its market capitalisation on capital expenditure and had nothing to show for it, he said.
The trading update revealed a better-than-expected performance during the five months to end-February. Renewed consumer confidence and increased spending were expected to lift demand for packaging in the remainder of the financial year.
"Gains from improved operating efficiencies and cost savings from a reduced manufacturing footprint are expected to mitigate the impact of the new entrant in the beverage can market," said Nampak, referring to Golden Era.
There was also good news on the Nigerian and Angolan fronts where demand had picked up. However, shareholders were warned that US dollar shortages in Angola and Zimbabwe could result in foreign currency translation effects.