Astoria the prize in this battle
Mauritian-based structure is seen as the real gem as RAC announces its stake through Livingstone Investments
In an unlikely turn of events, Astoria, a globally focused investment company launched and managed by listed asset manager Anchor, is under siege.
Astoria is a passive investment company with portfolio holdings in global stocks including Facebook, Apple, Home Depot, Starbucks and JPMorgan Chase & Co, along with private equity ventures and a strategic holding in East European property group Echo Polska.
At face value there seems little strategic incentive for a market player to build up an influential stake in Astoria — save to take advantage of the discount the share price offers on the underlying portfolio.
But RECM & Calibre* (RAC), an investment company headed by asset managers Piet Viljoen and Jan van Niekerk, last week confirmed a 28.56% stake in Astoria via subsidiary Livingstone Investments.
Van Niekerk says no further comment can be added at this point as RAC is in the process of shareholder engagement.
The deal is not your typical RAC transaction. Since listing in 2010 RAC has built a large presence in the alternative gaming market via a majority stake in unlisted Goldrush — but its other investments have focused mainly on deep-value situations like Unicorn Capital Partners (formerly Sentula), Distribution & Warehousing Network (Dawn) and Trans Hex Group.
At the end of 2017 Astoria boasted a NAV of 121c/share which, at the prevailing interest rate, equates to about R14/share compared with a share price of R10.50.
While the discount is compelling (at least compelling enough for Astoria to start buying back its own shares), the structure of Astoria’s investment portfolio and investment style is at odds with that of RAC. One market source noted: "Astoria’s investment style is 180 degrees opposite to that of RAC. It would be a long shot to assume Astoria and RAC would be looking to work together."
So what could RAC be planning for Astoria?
First off, it will be interesting to gauge if there is an intention to push for a larger holding. The question might be pertinent considering the decision to identify RAC, or at least Livingstone, as the entity accumulating the influential stake in Astoria.
Initially, as the various shareholding thresholds were breached, the buyer was only identified as Peregrine Equities. There were persistent rumours that Peregrine was buying on behalf of RAC, but such speculation was never officially confirmed. Last month the Peregrine stake was almost entirely disposed of, with Livingstone identified as the buyer.
JSE rules require a mandatory offer to be made to minority shareholders if the 34.9% interest level is breached. But with the Stock Exchange of Mauritius – where Astoria has its primary listing – a mandatory offer is triggered when the 30% threshold is crossed.
Astoria carries a market capitalisation of R1.3bn, which is more than the market value of RAC (about R960m).
RAC, albeit cash-flush from selling its indirect investments in health-care retailer Dis-Chem, might not relish having to buy out the whole of Astoria.
Even assuming a mandatory offer is triggered, there is no guarantee that RAC will have the support of most of Astoria’s (many) minority shareholders. If enough minority shareholders in Astoria resisted advances — which would be pitched well below NAV — then RAC may end up with a useful stake of 35%-45%. This could perhaps be higher if a convincing vision can be presented for the future of Astoria.
The real prize won’t be the Astoria portfolio, though this could be profitably unwound without much risk. The gem is Astoria’s Mauritian-based structure. It not only offers tax advantages but the large capacity (another US$300m) for building a global investment company.
Vunani Securities’ Anthony Clark believes there’s bound to be a rumble, with Anchor holding Astoria’s investment management contract. "There may also be a backlash from Astoria shareholders, because Anchor did quite well in 2017 by growing the NAV by more than 20%."
But without a sizeable shareholder of reference, Astoria might be hard-pressed to rally together resistance to RAC’s advances.
Clark does mention a potential "poison pill" in that the termination of Anchor’s management would require the payment of a year’s worth of fees, which could be as much as R90m. This is not huge in the greater scheme of things but, if valid, it could be distractive.
* The writer holds preference shares in RECM & Calibre