A R3.7bn bid by Old Mutual’s private equity arm for Long4Life, the investment company founded by entrepreneur Brian Joffe, may have left long-term holders of the stock unimpressed.
The unsolicited proposed offer of R5.80 a share is about 16% higher than the R5 it was trading at four years ago, and the premium might not be enough for those who bought and held the stock since then.
Over the same period, the JSE has gained just over a third. The proposal is about a 20% discount to the Sportsmans Warehouse and Outdoor Warehouse owner’s R7.27 net asset value (NAV) per share at the end of August — about half the gap in the market — and 11% higher than Thursday’s close.
Many of those who bought into Long4Life when it listed in April 2017 may have been induced by Joffe’s deal-making prowess and may have felt what has been achieved so far, and the Old Mutual offer, have not lived up to expectations.
Valuation gap
With the shares having consistently traded below the value of the sum of the group’s parts, they may also believe there are alternatives that could close the valuation gap.
Joffe’s legendary status in SA business stems from his success taking Bidvest from a catering and baking supplies company in 1988 into a R250bn industrial conglomerate employing about 150,000 people. Having decided that retirement was not for him, he invested R100m of his own money into Long4Life, attracting investors keen for a second bite of the apple.
Joffe has previously said that it is difficult to find acquisition targets that offer a better return than simply using cash to buy back its own shares. The Covid-19 pandemic also made it hard to value potential targets as entrepreneurs were reluctant to sell at valuations depressed by the economic slump, while buyers were loath to overpay for assets that may not recover.
The long-standing discount has prompted a strategic review of its structure, by Investec, which could see Long4Life unbundling its retail assets.
The company announced in October that the founder would vacate his CEO role and at the same time indicated that it had been subject to a takeover offer.
The news of the proposal sent Long4Life shares up as much as 5.7% to R5.53 on Friday, but by the JSE’s close, the gain had been trimmed to 2.29%.
The shares have risen by almost a fifth since October 14, when it disclosed the unsolicited expression of interest.
"If you were a holder since listing you are unlikely to accept, but if you bought your shares over the last year you are more likely to accept a sub-NAV offer," said OysterCatcher Investments analyst Wessel Joubert.
The company’s shares have underperformed despite the presence of well-known brands in its portfolio, such as Inhle Beverages and Chill Beverages, the latter known for its Fitch & Leedes mixers.
The group also owns beauty chain Sorbet. It said in its half-year results that it had received an unsolicited expression of interest.
Few options
"Although the core business is very well managed, strong operationally and cash generative, the market has not given them the valuation that they required to execute on their original growth plans, leaving them few other options than to make a strategic shift," he said.
Long4Life said on Friday it had formed an independent board to discuss the proposed transaction with Old Mutual.
Update: December 5 2021
This article has been updated with additional information and industry comment.
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