MARKET WATCH: New phase of play
I have to assume that WP Rugby’s margins are as reassuring as a 55kg flyhalf with his bootlaces tied together
There are so many big deals that Remgro, now flush with the proceeds of a R9bn rights issue, could tackle. The group was expected to buy the old SABMiller stake in Distell, but to the dismay of many punters this coveted stake was grabbed by the Public Investment Corp.
Maybe Remgro could now look at pitching an offer to minority shareholders in Capevin, which has a stake in Distell as its only asset? Remgro might also look to back Mediclinic International in acquiring a bigger shareholding in Spire Healthcare in the UK; or it could pitch an offer to buy out minority shareholders in consumer brands subsidiary RCL Foods.
Instead Remgro looks set to take a hospital pass after agreeing to rescue WP Rugby, which has been desperately fending off a determined creditor that pushed the business onto its dead-ball line.
Remgro, headed by sports mad Johann Rupert, already holds a 24.9% stake in WP Rugby — a stake that was inherited when it took over the old Sail group more than a decade ago. Though I have not seen the details of the deal, the sports pages have reported that Remgro will now own 49% of a restructured WP Rugby.
No deal value has been punted, but I am certain the transaction won’t put serious strain on Remgro’s balance sheet. Still, struggling WP Rugby could command a portion of management time that is perhaps not commensurate with the size of the investment.
Remgro has a small sports division (tucked up with its media investments) that — aside from the stake in WP Rugby — comprises a 50% interest in the Blue Bulls and a 50% holding in Premier Team Holdings (which is aligned to the Saracens rugby brand in the UK), as well as 100% of the Stellenbosch Academy of Sport.
In the year to end-June the sports investments (reflected as "other" in the accounts) generated a headline loss of R64m.
The previous financial year the loss was R85m.
No wonder Remgro CEO Jannie Durand has previously grumbled about the merits of investing in rugby ...
Personally, I’m not sure sports investment — especially buying into provincial rugby teams — is an appropriate investment for Remgro.
I associate investing in big-brand sporting teams with bored rock stars or business tycoons with enough free cash and free time to follow their favourite sporting pastime.
Remgro’s investment strategy revolves around the backing of cash-generative businesses with strong brands, defendable margins and highly regarded management.
The ability to "globalise" a business model (as seen from tobacco and health-care investments) is a bonus.
While WP Rugby is an iconic brand among local rugby enthusiasts, I have to assume — remembering the narrowly averted liquidation issue — that cash flows are not compelling, management is not particularly inspiring and margins are as reassuring as a 55kg flyhalf with his bootlaces tied together.
WP Rugby does have international attributes in that the Stormers franchise competes in the Super Rugby competition (which spans Argentina, Australia, New Zealand and Japan) and will play host to test matches.
What I do find encouraging is that the new deal at WP Rugby will, according to reports, result in a new board being convened.
Let’s hope the new board will include several experienced suits from Remgro to ensure the required corporate and commercial nous needed to operate a sports-brand business profitably in the professional era.
I doubt Remgro is going to make a fortune from its sports investments.
But putting WP Rugby back on the front foot might mute grumblings that sports-brand investments should rather be the domain of Rupert in his personal capacity.