SIMON BROWN: Delistings and unbundlings: know your rights

Two recent events on the JSE raise the all-important question for shareholders as to what they must, can and can’t do when a company goes through a profound change; in short, what are your rights as an investor?

The first is the news from Transaction Capital, which plans to list WeBuyCars separately on the JSE in March. The second is the announcement from MultiChoice that Canal+ has made an offer to buy the shares it doesn’t already own at R105 apiece.

Importantly, both require a shareholder vote. Let’s deal with the MultiChoice deal first.

The cautionary was withdrawn on Monday as MultiChoice argues that the offer undervalues the company. Maybe Canal+ comes back with a higher offer, or it goes hostile. Hostile means an offer put directly to shareholders without the existing board’s buy-in. It’s not common, but it is possible, and should the buyer go hostile the process remains the same in terms of shareholder rights.

Initially, MultiChoice’s plan was to appoint an independent board to assess the deal and make recommendations (this is also true of the Transaction Capital decision). If the independent board agrees the deal is fair, it will recommend that shareholders vote for the deal. If it thinks it isn’t fair, it will recommend not voting for the deal — but usually there have already been some discussions about fairness and usually the independent board gives the go-ahead.

Were the board to accept a bid, it would call a general meeting at which all shareholders would be entitled to vote. If a deal is accepted, the buyout will proceed. You can vote however you wish, but if approved, even a no vote from you won’t scupper a deal, and you will see your shares sold to Canal+ for whatever amount agreed. If R105 remains the price, and the hostile offer passes, this amount will be paid directly into your share account in which you hold the MultiChoice shares.

At the time of writing the MultiChoice share price was trading around R93, well below the proposed buyout price. This discrepancy reflects the time value of money and risks of the deal. If the deal fails, the share price is likely to fall back to levels before the announcement — around R75.

The time value of money is about how long this deal may take. If it takes a year, the value of money is what you could have earned in a risk-free asset (bank account or government bond) over the period and that’s about 9%. So the current discount to the offer price of about 14% suggests the market is pricing in a 5% chance of the deal collapsing, or taking longer than a year. Over time this discount to the R105 deal price should close.

The Transaction Capital deal is different but, importantly, shareholders still get to vote. If the unbundling is approved, existing shareholders will receive WeBuyCars shares pro rata to their Transaction Capital holdings.

In both cases shareholders will be informed of the meeting to vote and if passed there will be a last day to trade (LDT). If you hold the shares at close at LDT you will receive either the payout (MultiChoice) or the new shares (Transaction Capital).

You can sell at any time, even after you’ve voted, and you can also buy the shares at any point.

The key issue is that you do get to have your say, but if you’re in the minority you will have to go along with the majority view.