Regulators have approved a request to waive a requirement that Magister Investments make a full buyout offer to Tongaat Hulett shareholders — another step forward for the struggling sugar producer as it presses ahead with a R4bn rights issue.
The waiver from the Takeover Regulation Panel, part of the department of trade, industry & competition, means Magister will not need to take over the group completely should its shareholding cross a 35% threshold. SA law requires that such an offer be made automatically.
Magister Investments has offered to underwrite Tongaat’s rights issue by as much as R2bn, generating controversy and calls for transparency over its plans for the sugar producer.
Independent analyst Jimmy Moyaha said the implications are that if minorities do not agree with the offer, and do not take up those additional shares, then by default, they go back to the underwriter. If Magister finds itself having a majority as a result of those default shares, then there is no need, in this case, to make a separate formal offer to take over Tongaat Hulett.
“At that point, nobody can expect a firm offer to be put down because it is not via the traditional route, it’s almost by default that they will now own the company,” Moyaha said.
Magister has capped its shareholding at 60% post-implementation, and made the waiver a condition of its participation, citing a desire to keep the group listed. This will give it a foothold on the JSE and probably allow it to broaden its portfolio, which already comprises ownership of transport, agriculture, and financial services companies on the Zimbabwe Stock Exchange.
“I can’t see why they would rush to delist it just yet if they are able to turn around the company, particularly if they are getting the company at the price which they are getting it at,” Moyaha noted.
Tongaat shareholders approved the rights issue last week, with 77.3% also voting in favour of waiving their rights to a mandatory offer.
The sugar producer, valued at R674m on the JSE, is pursuing the rights issue to help deal with a R6bn debt pile and has been struggling to generate enough cash and sell off sufficient assets to meet demands from lenders.
The final details of the capital raise, such as the price, have yet to be finalised but the company is looking at as much as R4bn.
Investment analyst at Protea Capital Management, Richard Cheesman, said it is yet to be seen how many shareholders follow their rights or apply for excess rights.
He said the pricing, and subsequent share price movements, would be a key factor for shareholders because it will determine the value, if any, there will be in the rights.
But “usually companies want the rights to go through so they price the rights attractively ... so people will have an economic reason to follow them”, Cheesman said.
Tongaat’s scramble to whittle away debt was thrown off course by the July civil unrest, which tore into profits and property sale prospects. However, the timing of the process has drawn criticism, as it could affect the potential inflow of funds that could support the business should the company settle with Deloitte early, in a similar manner to Steinhoff.
Questions have also been raised about the participation of Magister, which is linked to the wealthy Rudland family, an active investor in Zimbabwe. Hamish Rudland has since been appointed to the Tongaat board, and his brother, Simon, survived an assassination attempt in Johannesburg in 2019. Simon Rudland is co-owner of Gold Leaf Tobacco.
This prompted some minority shareholders and activists to call for a postponement of Tongaat’s meeting last week, warning it was open to legal challenge, and to call for transparency.
However, Tongaat chair Louis von Zeuner told shareholders PwC had made an assessment of and performed due diligence on Magister, while Standard Bank had offered a bank guarantee to support the underwriting commitment, providing additional comfort.
“The board and management of Tongaat have placed governance at the centre of the business since their appointment in 2019 and have adopted the same approach with regard to this proposed transaction,” Von Zeuner said.
After the rights offer, Magister, which owns 0.15% of Tongaat, will receive a board seat for every 20% of the company it owns. Rudland family members already own 9.98% of Tongaat through a United Arab Emirates-registered company, Braemar.
Tongaat’s shares were down 2.40% on Monday afternoon, trading at R4.87, having almost halved since November 17, when it announced the rights issue.
Shareholders have until Monday January 31 to request a review of the waiver ruling from the takeover special committee.
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