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Why Premier Group cancelled its JSE listing

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FIFI PETERS: Premier Foods makes Snowflake flour, which a lot of people use for baking and stuff, Blue Ribbon bread, as well as Iwiza maize meal. If you’re not counting the carbs, you enjoy those. But last month Premier Foods announced that it was planning to go it alone by listing on the JSE and breaking away from its parent company, Brait, which is chaired by billionaire Christo Wiese. It was going to be a big deal. The company’s PR team sent out invitations on December 1, asking some members of the media who planned to attend for their dietary requirements, and disclosing what the programme would’ve been like on listing day, which was pencilled in for 8 December.

But a day after sending out the invitations, the company backtracked on the event and said that the listing would no longer be going ahead, because South Africa’s capital markets ‘in particular over the last 48 hours’ were not conducive for a successful listening.

So, what happened in the last 48 hours when Premier through Brait issued their statement? Well, we had the independent panel release the Phala Phala report that showed President Cyril Ramaphosa had something to answer for, for the manner in which the theft at his farm was handled. This triggered a weakening of the rand by the most this year, as well as a big sell-off in the bond market – the biggest sell-off we have seen since 2015.

So, is this what Premier Foods was talking about when it said that the capital markets were no longer conducive? Let’s find out. We’ve got Kobus Gertenbach, the CEO at Premier Group, for more. Kobus, thanks so much for your time, sir. Was this decision of yours determined by Phala Phala and the impact that the release of the report had on the capital markets?

KOBUS GERTENBACH: Good evening, Fifi. Yes, I think that if we trace back our activities in the sort of week that was going to end on Friday, December 2, we were talking to all the fund managers. We were on a roadshow where we were meeting all the large fund managers for about a two-week period leading up to that.

Then we got into the final throes of the listing process, where we were really expecting the orders to start coming into the order book, and at that point in time I think that markets were already a little jittery. There was already some indication, a lot of feedback coming that either the offering was too small, or that the price suddenly didn’t feel appropriate to some of the fund managers.

But then right in the sense of the period of time, I think the speculation became quite rife as to whether the president intended to resign or not.

As you mentioned, it created quite a bit of turbulence in the markets, especially vis-à-vis the South African markets. At the end of the day we got to the point where we weren’t able to fill the book with orders, so we literally had a choice [on] the Thursday evening: Do we postpone and give the market more time, or do we at this point in time just recognise that things are too difficult and that there just really isn’t an appetite for a initial public offering at this point in time.

Read: Brait cans Premier’s JSE listing

So at that point in time we thought it appropriate to just announce to the market that we were withdrawing the listing process and that in fact the private transaction which we had communicated in terms of the pre-listing statement, whereby Dr Wiese would be buying a controlling stake in Premier in a private capacity, is ultimately going to be the transaction that we now pursue.

FIFI PETERS: That was going to be my next question. You mentioned you had the decision of whether to can this thing completely or whether to postpone. Subsequent to last week, the president hasn’t resigned. He is still there. He has told us that he’s fighting for his legal life as well as his political life. He is still the president.

So why wasn’t postponing the right call or an attractive decision to take at the time?

KOBUS GERTENBACH: Fifi, I think if we had better support, if we had more support from the larger institutional investors in South Africa at that point in time, if we felt that we were getting closer and it was really a matter of just closing out a few additional investors, I think we would’ve continued with the process. But we felt that the gap in terms of the size of the book, literally the commitments that we had at that point in time, were so large that we just didn’t foresee in a short period of time of, let’s say another two, three or four days, that we would be able to turn around people’s opinions and thoughts on the whole process.

FIFI PETERS: Can you perhaps share some of those opinions and thoughts of investors that you engaged with regarding the political situation in this country right now, and what you can deduce, from the actions that they took, will happen if the president actually does go?

KOBUS GERTENBACH: Look, I think that none of the fund managers per se expresses very strong opinions in terms of political development. I think what tends to happen when the markets go into a turbulent period their focus shifts solely to trying to protect the downside in terms of their portfolios. So they become very active in terms of monitoring the market, focusing on the trading patterns, focusing on movements in the rand, and so I think that ultimately their attention just shifts away.

One must remember that in order to get a listing away, you need a lot of confidence in the markets.

You need people to be confident that that the market is going to see decent returns, because people have to free up and create liquidity out of their existing portfolios. In other words, they usually have to sell down some other shares in order to take up shares in a new listing. I think one needs very constructive, very positive market sentiment for that.

If there is big turbulence, like there was in those few days, I think the attention span just completely moves away from the new listing and everybody starts focusing on protecting their own portfolios and protecting downside.

FIFI PETERS: As you said, the route that you’ve chosen is the route whereby Christo Wiese buys up a whole lot more shares in Premier that he doesn’t already own. I believe that RMB is also at that transaction table, buying up shares and small bits to ultimately get you the R3.5 billion or so that you could have ideally raised if you had listed on the JSE.

So is that going ahead? All the Ts & Cs that were required to be met by the competition authorities and all of that – have those all been met and has that transaction started?

KOBUS GERTENBACH: Well, in fact we still need to submit our filing. Obviously we didn’t really pursue the private transaction while we were contemplating the listing. So there is a signed sale agreement. There are quite a number of conditions that need to be met for that agreement to get implemented. And so I think it’s going to take a few months.

Given the size of Premier, it is a large merger filing with a change of control, so there’s no real specified timeframe within which the Competition Tribunal ultimately has to approve this transaction. We would expect it to run for quite a few months as they go through the normal process of evaluating the transaction and determining whether there are any competitive issues that they need to deal with.

So I think it’s still going to take a few months to conclude the transaction, but we’ve certainly got a signed sale agreement and all the parties are now working constructively to conclude this private transaction.

FIFI PETERS: Well, it is good to know. I suppose we’ll catch up when you do get the regulatory approval sometime in the new year, just to find out what this will mean for shareholders after that.

But we’ll leave it there, sir. Thanks so much to Kobus Gertenbach, the CEO of the Premier Group, for providing us with a really practical example of what does happen to investments or even business decisions in this country, where there is too much political uncertainty that is injected in our system.

What happens? The company that could have listed on the JSE decides not to do so because its shareholders are not confident in the current ecosystem.

 

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