Stay on board or take the money and run? Shareholders who need to make that decision aren’t getting much help from the circulars issued by fashion retailer Rex Trueform (Rextru) and pyramid holding company African & Overseas (AFO). Details of their mandatory offers are frustratingly scant.
In April a consortium headed by existing shareholder (and former asset manager) Hugh Roberts and former Hosken Consolidated Investments chairman Marcel Golding bought a large shareholding in Rextru and AFO from empowerment company Brimstone.
The deal triggered a mandatory offer to shareholders, though it didn’t result in a change of control (thanks to the Shub family having sewn up the necessary influence via a low-voting N-share structure and the archaic pyramid structure).
Both Roberts and Golding are low-key operators, and don’t readily engage with the media. Rextru and AFO also prefer to fly beneath the market’s radar. Consequently the emergence of a new investment consortium (and departure of a respected empowerment investor) has not been fully explained.
Brimstone, I know, reached the end of its tether, unable to convince the board(s) to initiate strategies to release value and growth. Whether Roberts and Golding will have more luck convincing a very conservative board to push a little harder in improving shareholder returns is a critical consideration.
I thought the circulars might provide at least one or two clues as to what might transpire at Rextru and AFO if the consortium could indeed bring its influence to bear. Not quite ...
What the circulars reiterate is that the nature of the fashion retailing business (via the niche Queenspark chain) won’t change. There is also no intention to delist either Rextru or AFO. What I can’t glean is whether the Shub family is intent on relinquishing effective control of Rextru to Roberts and Golding. In the Rextru circular only Transvaal Clothing Industries (with a 7.11% stake) has indicated it will not sell its shares in the mandatory offer. Does that mean AFO will be selling its shareholding?
I can’t imagine Roberts and Golding (no doubt aware of Brimstone’s travails) would tilt so purposefully at an influential holding without assurances that they were free to influence strategy. Other than the obvious unlocking of Rextru’s property potential (predominantly in the Salt River node, which is now hip), I’d also imagine that Roberts and Golding would not want to sit on Rextru’s large cash cushion.
Presumably Queenspark could be complemented with other boutique retail formats, adding much-needed mass and diversifying the earnings base.
So what should shareholders do?
I realise it might be tempting to bail out, if only because of the frustrations of holding illiquid scrip. But I’d be inclined to stick around to see what Roberts and Golding can conjure up.
Fundamentally, shareholders do have something to think about as the independent opinion suggests the consortium’s offer (R12.14/share for Rextru and R11.10/share for the N-shares; R14.07/share for AFO and R11.12/share for the N-shares) is "fair but not reasonable".
The independent fair value of Rextru shares ranges between R14.10 and R16.12; and between R13.22 and R15.11 for the N-shares. AFO’s share sits between R17.71 and R20.22; and R14.17 and R16.18 for the N-shares.