The country’s largest pension funds administrator, Alexander Forbes, is ripe for a takeover after Mercer’s disinvestment, but Patrice Motsepe’s African Rainbow Capital says it doesn’t intend pursuing that route.
ARC and Forbes announced late on Wednesday that the former, which is owned by billionaire Patrice Motsepe’s Ubuntu-Botho, will be buying Mercer SA’s shares, and in the process become the strategic shareholder at Alexander Forbes.
The Companies Act stipulates that when a shareholder acquires 35% or more of any company’s shares it didn’t own before, it must make a mandatory offer to buy out minority shareholders.
In ARC’s case, its stake, after the acquisition of Mercer SA’s shares Alexander Forbes’ share buy-back, will stand at 33.9%. But because ARC has decided to convert its shareholding in the unlisted subsidiary of Alexander Forbes to listed shares, the impact will be an increase in ARC’s shareholding in the listed company to 41.3%, thus triggering the mandatory offer regulations.
Minority shareholders vote
Addressing the media on Thursday morning, Alexander Forbes CEO, Dawie de Villiers, said ARC has applied to be exempted from making an offer to buy out minority shareholders. ARC needs 75% of minority shareholders to vote in favour of waiving its obligation to make an offer.
De Villiers said Alexander Forbes did not engage minority shareholders prior to Wednesday evening’s announcement but the feedback he had received from few of them on Thursday morning was “very positive”.
“We are very pleased that ARC decided to invest more. They are a smaller investment company in the bigger scheme of things. For them to decide to put another R1bn into our company was quite a big decision,” said De Villiers.
He said as a strategic shareholder, ARC planned to change nothing, which is part of the reason it doesn’t want to pursue a takeover. “They are buying in because they believe in the current strategy,” said De Villiers.
Jean Pierre Verster, CEO at Protea Capital Management, said the transaction was good for Alexander Forbes as it would now have one strategic shareholder, rather than two. “It makes it easier to align the interests of the company with that of shareholders. It is a pity that a foreign investor is selling a material shareholding in a leading South African company, but having a single strategic shareholder with strong BEE credentials is the best solution for Alexander Forbes going forward,” said Verster.
Protea Capital Management senior analyst, Richard Cheesman, said it would be interesting to watch upcoming moves by ARC in the financial sector, because this would probably not be the last.
Why did Mercer leave?
De Villiers believes the American firm tends to pursue investments where it can outright own 100% of the companies’ shares. In the case of Alexander Forbes, it intended to all the shares from the start, but couldn’t integrate Alexander Forbes’ stake, given its accounting principles.
De Villiers said after Mercer got an opportunity to own 100% of British insurer, Jardine Lloyd Thompson Group plc (JLT), it started exiting investments where it was proving difficult to own all shares. Mercer acquired JLT for $5.6bn in April last year.
“What they call it is reallocation of capital. They need capital to go to the JLT transaction.” He said all commercial relationships between the two companies would remain in place.