Research archive for BVT

Big news, Bidvest and Bidcorp started trading independently of one another yesterday. This was well telegraphed, and you should have seen it coming from quite a mile away. It always catches one by surprise however, we luckily have built systems to be able to do this real time. The only thing unknown, and will be revealed on June 1 is the ratio, i.e. the price paid of the two respective businesses. We could see already that the there was a substantial rerating of both stocks, perhaps natural buying from funds and indices, perhaps a better understanding of the separate businesses and the value unlock that everyone has been waiting for.

Bidvest reported numbers yesterday morning before the market opened. We laughed in the office, there are supposedly so many similar characteristics when comparing arguably the best allocator of capital ever, Warren Buffett and Bidvest founder Brian Joffe, one of the best allocators of capital this country has seen. At least for the last generation, he has certainly done an amazing job, Joffe. The two companies reported on the same weekend, that can't be a coincidence, it was meant to be, hence the fact that we were having a good chuckle, Joffe often is called South Africa's Buffett.

Bidvest announced that they were going to spin off and separately list their Food Services business on the JSE. This of course is not completely new news, an announcement in October last year about a restructuring plan had been telegraphed to the market. No time frames are given, shareholders are made aware that various obstacles and hoops need to be cleared and jumped through (poor, apologies grammar police) in order for this to happen. When we wrote about this the first time last year, in a message titled: Bidvest restructure, we pointed out that the FoodService business was around 116 billion Rand of revenues and just short of 4 billion Rands worth of trading profits.

A pretty innocuous announcement from Bidvest yesterday that possibly has longer lasting implications for the future of the business is definitely worth dissecting. I for one, at a separate level, am so glad that the succession arguments have gone away. For one, Buffett and Munger have a collective 175 years between them, Brian Joffe is only 68. And whilst Berkshire is 50 years old, Bidvest is "only" 27 this year, having started with food businesses Chipkins and Sea World. Yet the team, led by Joffe has managed to build an empire that is now worth 115 billion Rand, something that is really sizeable, with annual revenues in excess of 200 billion Rand.

You know that I am not the biggest fan of quotes and that I believe that you should make your own, this is more a statement from Brian Joffe, the CEO of the Bidvest Group, who reported results for their full year this morning: "We strive to turn ordinary companies into extraordinary performers, delivering strong and consistent shareholder returns in the process. We understand that people create wealth and that companies only report it."

Bidvest and the PIC are on the same page, when it comes to the voting of Adcock shares, a pool agreement in which the two parties collectively will have voting rights over 47.82 percent of Adcock shares. They will pool approximately 41 million shares each, and vote 82 million shares as a collective block. This comes after the PIC rejected the 52 Rand a share offer for the 48,466,905 shares that they manage on behalf of the Government Employees Pension Fund and the UIF. I guess they, the PIC will vote the extras in the same manner as the pool agreement, equally Bidvest who will have a lot more than the 41 million shares prior to the recent transaction. After taking their (Bidvest) and CIH stake up to 34.5 percent, they owned 59 266 944 shares.

Just one thing to add to the Bidvest offer to everyone else at Adcock Ingram at 52 Rand a share, if you take your stake (in this case Bidvest) over 35 percent, you are obliged to offer everyone else the same price, being 52 Rand. I do not expect the major shareholders to take this, the PIC being the other big one who rebuffed the Chileans, CFR, at and around 72 Rand a share now are hardly going to accept 52 Rand. It is just a formality really. Read nothing more into it that Bidvest have managed to get two of the major shareholders to accept their advances. With this acquisition they are edging closer to owning more than half the shares, removing uncertainty as to their intentions. They eventually want all of it, Bidvest that is, they want all of Adcock eventually. I guess if the price is right for the PIC, they will take it.

Bidvest have announced this morning that after consultation with two separate parties, Blue Falcon (10.59 percent currently) and the Bophelo Trust (3.6 percent in total), the company would buy their Adcock shares at 52 Rand apiece. These are not ordinary shares, they are linked to an empowerment deal (dividend shares), the parties above would be left with 2.571 million "dividend-acquired Adcock ordinary shares." As you can see, those shareholders above are sizeable, this then triggers an offer to minorities at the same price, 52 Rand a share. Remembering that Bidvest and CIH paid around 70 Rand in order to get a 34 odd percent controlling stake. The 52 Rand offer is a premium to the 30 day VWAP of 13 percent, not exactly a kings ransom. Who are the other main shareholders, who would have to OK any deal of any sort? Here:

Straight to companies, in an interview with CNBC's Alec Hogg, Bidvest CEO Brian Joffe said that the numbers, the Adcock numbers were not good, and that he (Joffe and Bidvest) did not do as good a deal as they would have liked. In fact you can read the transcript and see that I get a mention, the Magician of Melrose Arch, Byron actually coined that phrase I think: Quizzing Brian Joffe: Has SA's great capital allocator boobed on Adcock?

Bidvest have released their full year numbers to end June 2014 this morning. We often say that this company is very close to us and this is true, they are right next door, their back stairwell is ten metres from our offices here. So we are close in proximity to a man that sometimes we term the Magician of Melrose Arch, using the similar reference to the Oracle of Omaha (Warren Buffet). Brian Joffe, the man that runs Bidvest has been called the Warren Buffet of South Africa, his ability to continue to bolt on businesses into the Bidvest stable using existing cash flows is compared to Buffet going elephant hunting from time to time.

Bidvest released an announcement yesterday regarding their investment (with CIH) in Adcock Ingram, it was pretty self explanatory. Collectively the consortium owns 59 266 944 Adcock Ingram ordinary shares, which represents 34.5 percent of the company (excluding certain other shares) and therefore, as they say, means that they do not have control of the company.

Bidvest announced two separate deals yesterday. First things first, Bidvest are buying a 60 percent interest in an Italian foodservice provider Gruppo Dac S.p.A. or DAC and a significant controlling interest in a chilled product storage and distribution business in the UK, PCL 24/7 for 95 million Pound Sterling. I guess a significant controlling interest is around one quarter to one third, but it could be as much as 49 percent. In this case I reckon 30 odd percent is a good guess.

Bidvest have reported results for the half year to end December 2013 this morning. Revenue increased nearly 19 percent to 89.6 billion rand, EBITDA increased by slightly more than 19 percent to 5.4 billion Rand, headline earnings increased by 16.7 percent to 842.3 cents per share, whilst distributions per share was up 22.9 percent to 398.1 cents. The stock has reacted positively to the numbers, up about a percent more than the rest of the market as a whole.

Bidvest released a trading update yesterday, in amongst all of the goings on, being part of the consortium (with CIH) that have taken a stake in Adcock Ingram. The expectation is for earnings per share to be between 17 to 19 percent higher for the comparative six months (724.4 cents per share). So the range that we are steered towards is 847.5 to 862 cents per share. Now Mr. Market is only anticipating a ten percent increase in earnings for the full year, but that hurdle is somewhere around 1720 cents worth of earnings, so clearly there needs to be some heavy lifting in-between now and then.

Adcock Ingram shares lost nearly 7 percent yesterday, the Bidvest and CIH consortium comfortably overpaid for their 34.5 percent stake, but they needed to pay top Dollar to get the shares. The realisation that the Chileans are gone set in, another big volume day. Nothing like last week however, where 39 million shares traded on Thursday. The clincher for Bidvest/CIH. 621 thousand shares traded yesterday, big by ordinary standards. With 175 million shares in issue for Adcock (and some change) it will be interesting to see how liquidity will dry up as the gorilla shareholders decide what to do with management and strategy now. The way I count it, the PIC has 22.37 percent of the shares outstanding, Bidvest/CIH have 34.5 percent and Foord owns 15.02 percent, only 28 percent of the shares belong to other shareholders. Wow. There is no Bidvest/CIH underpin anymore at 70 Rand, the reality of the poor trading update has meant that the price is lower.