By Alec Hogg
Imperial Holdings’ four-year road which began with a quest to unlock value for shareholders will formally end on November 22. On that day its two already independently managed and governed entities will formally divide into separately listed JSE entities.
The process was initiated by former CEO Mark Lamberti soon after his appointment in 2014. After a slow start, growing enthusiasm at the energy that will be unlocked through the unbundling saw the share price peak double in six months to peak at R280 in February this year. But it has since fallen back to under R180 a share, below the level at which it traded before Lamberti’s appointment, reflecting investor concerns at the stagnant South African economy to which Imperial’s fortunes are tied.
The Lamberti-initiated review of the industrial group found that its myriad of decentralised business units fitted snugly into two broad themes which had little synergy between them. The group was then divided into these self-standing operations– Logistics and Motus – which were reported on as separate units in the financial year to end June 2018.
Motus, the SA’s dominant car retailer and car hire company, is to be the part unbundled into a new JSE-listed entity. Shareholders will be given one new Motus share for each Imperial share they currently own.
Today’s documentation projected the Motus market capitalisation in May at R23.4bn, around half of the enlarged group’s intrinsic valuation of R46bn at the time. Imperial’s market cap has fallen recently to the current R36.5bn, mirroring the decline in emerging market stocks. This would imply a value of slightly under R20bn for Motus.
In terms of scale, Motus is the larger of Imperial’s twins, generating 60% of the group’s 2018 revenues and 56% of its operating profit. It will be led by Lamberti’s successor, 57-year-old group CEO Osman Arbee, who returns to service in January from extended medical leave after complications following surgery.
The existing listed company will change its name to Imperial Logistics and is to be led until retirement in the middle of next year by 56-year-old CEO Marius Swanepoel. He will be succeeded by 38-year-old Mohammed Akoojee, the CFO, who has stepped into the group’s top job during Arbee’s enforced absence.
Imperial Logistics will employ around two-thirds of the group’s staff (30,000 vs 18,000 at Motus). It is the twin better hedged against the Rand with two-thirds of its revenues from outside of South Africa. It accounts for 40% of the group’s profits and 44% of its operating profit. And by the group’s own calculations, it is likely to be worth the same as Motus.
The difference in the projected market valuations reflects the recent growth paths of the two operations. In the financial year to June 2018, Imperial Logistics grew both revenues and profit a modest 3%. During those 12 months to end June, Motus revenues rose a healthy 19% and profit by 9%.
Although Motus currently generates only 14% of its revenues outside of South Africa, this is likely to expand in future.
In August last year, Motus made its first foray abroad when acquiring 100% of UK auto dealer Pentagon for £28m (R493m at the time). Pentagon, established in 1991, operates through 20 dealerships, generating an annual turnover of £500m. In February, Motus followed-up with the purchase of 75% in Australia’s 16-dealer strong SWT Group for A$24.2m (R254m).
As Investec is sure to confirm in due course, an unbundling exercise hasn’t come cheap.
Today’s notice from Imperial discloses costs of almost R250m, the bulk of which was via R150m in broadly defined “unbundling costs” (professional fees etc), with a one-off tax expense of R41m and “debt breakage” costs of R27m. The executive teams of Motus and Imperial Logistics will receive bonuses totalling R19m for the extra work the project has required of them since 2014.
A detailed circular and the Motus pre-listing statement will be distributed to shareholders within a fortnight. Shareholders will be asked to vote to approve the unbundling at the Annual General Meeting on October 30 with the listing of Motus coming three weeks later.
The end October event will be the last AGM for the group’s chairman, former PwC senior partner 62-year-old Suresh Kana. He took the reins in 2015 on condition that he would leave once the unbundling had been concluded.
Kana will be succeeded as chairman of Imperial Logistics by 43-year-old Phumzile Langeni. Deputy chairman Oshy Tugendhaft (69), who has been an Imperial Holdings director since 1998, is to resign to join the board of Motus.