For a small liquor company — and one restricted mainly to grape-based brands — KWV Holdings attracts an inordinate amount of media and market attention.
In the past decade several big-name investors have, at various times, come to hold influence or large positions in KWV. These include retail tycoon Christo Wiese, Jannie Mouton’s PSG, former Coronation CE Thys du Toit, value investing acolyte Piet Viljoen (via RECM & Calibre), and corporate chess master Johnny Copelyn (via Niveus and Hosken Consolidated Investments — HCI).
In the old days KWV —with a slightly different corporate structure — was a noteworthy unlisted investment largely because it offered investors a cheap round in JSE-listed liquor powerhouse Distell. In fact, the dividends from the stake in Distell pretty much kept KWV’s profit barrel from running dry.
Once KWV was restructured and the stake in Distell unbundled to shareholders (via Capevin), a thirst remained for the company’s unlisted scrip.
About six years ago PSG’s Zeder reckoned it had a chance to profitably scale up KWV’s operations by merging the business into Pioneer Foods’ Ceres Beverages. Minority shareholders shot this proposal down, and a miffed PSG/Zeder offloaded their 38% stake to HCI.
HCI has done a good job in cutting out operational excess —costs that are deeply ingrained after decades of operating as a co-operative. HCI also understood the need to persist with marketing spend and elevating quality, which has been reflected in many awards but sadly not in sustainable profits.
Now HCI/Niveus are purportedly in talks to sell KWV to well-known businessman Vivian Imerman, who has a listed vehicle on the JSE in the form of Sacoven.
Imerman is best known to local investors for his role in building up Del Monte Royal Foods, which delisted from the JSE in the late 1990s. But he subsequently had enormous success in buying control of a then neglected scotch-maker, Whyte & Mackay, which he turned around and sold to Indian liquor giant United Distillers at a legendary profit turn.
Does Imerman think he can pull off a "Whyte & Mackay" at KWV? Imerman — who I reckon will embark on corporate action to bulk up KWV — must have high hopes for the company, as he seems to be willing to pay HCI/Niveus a price close to net asset value (NAV) for the liquor group’s operational assets. That means a price tag that is more than three times the last traded over-the-counter price.
I’m still finding this hard to believe, but a trusted source reckons HCI/Niveus will not only get at least official NAV, but also retain the legacy assets (valuable artworks and real estate). I have always sensed that HCI/Niveus were doggedly determined to turn around KWV without resorting to selling off assets to unlock NAV, which some punters put as high as R25/share. If the bid price is more or less correct, then I don’t blame them for considering letting go of KWV.
The HCI/Niveus executives are not the types to shy away from a tough situation, but I think this time it would be prudent to take the money instead of the box. Niveus has some challenges with its core alternative gaming interests, so it may be better not having executives spending inordinate amounts of time with liquor assets that might take years to yield acceptable returns.