Trencor turns, finally
After years of false starts, investors in the container group may, at long last, see their ship come in
Investment holding group Trencor, which in its heyday controlled the largest operator of marine cargo containers in the world, has edged one step closer to unlocking its value-destroying control structure.
If all goes according to plan, 27.2-million Textainer shares (owned by Trencor) will be distributed to Trencor shareholders before year-end.
For Trencor shareholders it has been a painful and surprisingly slow process, given the stated commitment of its single largest institutional shareholder, Coronation Fund Managers, to shake things up.
At Coronation’s AGM early this year, head of investments Karl Leinberger said: "Trencor is a good example of a case where we have been quite active." He described how Coronation had engaged "strongly" with the company to reduce the six investment entry points available 20 years ago to just one. "Huge work was done behind the scenes to unlock the legal structures," said Leinberger.
However, though it has been on the cards for years, the unbundling is not quite in the bag. Several conditions need to be met before the final go-ahead.
A primary condition is that the JSE grants approval for a secondary listing of Textainer, which is registered in Bermuda and has a primary listing in New York.
The 27.2-million shares represent 48% of Textainer and the bulk of Trencor’s steadily diminishing value. Trencor’s end-December 2018 balance sheet valued the Textainer shares at R3.9bn, a precipitous 46% drop on the end-December 2017 value.
The slightly weaker rand was unable to make up for the more than halving of Textainer’s share price to $9.96, from $21.50.
The group has struggled to keep up with its acquisitive competition since former CEO John Maccarone left in 2011. Not only has it slid to third position in global rankings, but its results look particularly grim beside the world’s No 1, Triton International.
With no-one on the board willing or able to act, long-suffering Trencor shareholders have looked on helplessly as most of Textainer’s vital signs headed south after Maccarone’s departure. Activist shareholder Chris Logan reckons a big part of the problem is down to a number of tricky bylaws in Textainer’s constitution, which protect the board from a hostile takeover and secure the positions of its top executives. Logan says these bylaws shelter underperforming executives who, despite the poor performances, are generously remunerated.
Trencor’s shareholders haven’t been as lucky: Textainer’s return on equity has declined to just 4%, from 30% in 2011.
"Its share price collapsed from being priced at a premium rating of 2.5 times book value to a discount rating of 50% of book value," says an exasperated Logan.
Ahead of last year’s AGM, Logan was one of two shareholders who tried to lodge two resolutions for consideration at the meeting.
The resolutions called on Trencor to use its "substantial influence" to remove the anti-takeover bylaws. The Trencor board lawyered up and told Logan he did not have the authority to present the resolutions.
These sorts of bylaws would not get past the JSE’s listing requirements, but because Textainer is only seeking a secondary listing, its executives may be able to hold onto their security blanket.
One of the conditions to the unbundling, says Trencor in a recently released Sens statement, is that the JSE approves the listing "on a basis acceptable to the Textainer board of directors and the implementation of the inward listing in accordance with its terms".
This may be why Logan remains sceptical about operational progress after the unbundling. "Whether Textainer’s performance will improve once no longer under the protection of the apathetic Trencor board remains to be seen." But he is hoping the increased liquidity will at least help the share price.
News of the unbundling brought some relief to the battered Trencor share price, taking it to a smidgen over R30, reducing the discount to NAV to just 17%. But the price remains far from its 2014 high of R82. Other assets making up Trencor’s NAV of R6.2bn are the R1.7bn investment in specialist container group TAC and cash of almost R900m. It’s hardly enough to justify Trencor’s continued listing once Textainer has been released.