Philisiwe Mthethwa. Picture: FREDDY MAVUNDA
Philisiwe Mthethwa. Picture: FREDDY MAVUNDA

Greenbay Property’s R1.6bn unsolicited offer for the jewel in the crown of Group Five is exactly the kind of deal the construction group’s former directors warned about — before they were pushed out.

The cash offer for Group Five’s European business caused its share price to shoot up by as much as 42% when it was announced on Monday. But not everyone is convinced it’s a good deal.

Speaking to the Financial Mail this week, former Group Five chair Philisiwe Mthethwa said it didn’t make sense for a company to sell its best-performing division — and to return the proceeds of that sale to shareholders — at a time when the rest of the business was not performing well.

"I believe this offer is going to be a test for the new board. It you look at this deal, it has all the same ingredients as the fight earlier this year between the previous board and a shareholder."

A good deal, she says, should be based on a fair valuation of the European business.

But there’s no sense yet of whether this value is fair.

Mthethwa resigned along with her board in July after a spat with the construction company’s 25% shareholder Allan Gray. Backed by Coronation (which holds 14.4% of Group Five), Allan Gray said it had "lost confidence" that the company was doing the right thing for investors.

Part of the mistrust relates to an offer Group Five got to buy its profitable concessions business from private equity company Ethos. But the board never told shareholders about this approach.

At the time, Mthethwa’s board accused Allan Gray of wanting to unbundle Group Five assets.

Today, there is speculation the Greenbay offer will do exactly that.

We believe this offer substantially undervalues the target assets in relation to other expressions of interest
Nonyameko Mandindi

However, Group Five’s current board has also shown little enthusiasm for the deal. Chair Nonyameko Mandindi says: "We believe this offer substantially undervalues the target assets in relation to other expressions of interest."

The board would "consider the merits of the offer" and make a decision in the best interest of Group Five shareholders, she added.

Mandindi says the board will also appoint an independent expert to provide an opinion on the offer.

That offer, presumably, will have to consider the effect of a sale on the sustainability of the rest of the business. But doing that before Friday — the deadline it has been given by Greenbay to accept a deal — may be difficult.

Mish-al Emeran‚ an equity analyst at Electus Fund Managers‚ says Group Five has been given "very little time in which to consider the offer and get an independent expert’s fair and reasonable opinion".

He says Group Five shareholders can benefit if most of the proceeds are returned to them or are reinvested for efficient growth. But given delays at the company’s Kpone gas power project in Ghana and the dreadful performance of its domestic construction business, he says: "I don’t think it’s a foregone conclusion that all proceeds [will] flow to shareholders’ benefit."

Whether Group Five itself benefits is another question, Emeran says. "On balance I think the business probably won’t benefit from the deal as it loses balance sheet strength and cash flows, on which I think the rest of its business relied to win work."

Group Five’s European assets include toll road concessions in Central and Eastern Europe, including in Hungary, Poland and Bulgaria. Intertoll Europe’s contracts provide significant annuity income and are deemed to be the "jewel" in Group Five’s crown.

Greenbay is a real estate and infrastructure investment group listed on both the JSE and in Mauritius. It is already invested in toll roads and also airport businesses across the world, according to CEO Stephen Delport.

Greenbay is not interested in Group Five’s African concessions businesses. Rather, Delport says there are a lot of opportunities in East and Central Europe, and also the US and Ireland, where Intertoll has operations. Greenbay invests only in developed real estate markets, including Europe, the US, Canada, Australia, Singapore and Hong Kong, he says.

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