‘End of an era’ as PSG set to delist from JSE

 ·1 Mar 2022
JSE Bank insurance Money

PSG Group has on Tuesday, 1 March 2022, announced that it intends to delist from the Johannesburg Stock Exchange (JSE).

The group said it intends to unbundle its stakes in PSG Konsult, Curro, Kaap Agri, CA&S and 25.1% of Stadio, whereafter it will repurchase all PSG Group shares held by its shareholders – other than select shareholders including management, the founders and their immediate family members – for R23 per share in cash.

“This will unlock enormous value for PSG Group shareholders,” PSG said. The combined value of the aforesaid unbundlings and the cash repurchase as at the close of business on Friday, 25 February 2022, amounted to approximately R114 per share, representing a 38.4% premium to the closing PSG Group share price at such date of R82.31.

This is the second value-unlock initiative recently undertaken by PSG Group management following the unbundling of Capitec.

PSG Group CEO, Piet Mouton said: “In all our engagements with shareholders over the past five years a significant part of the conversations revolved around the discount at which we trade and what PSG Group can do to narrow such discount. In 2020, PSG Group unbundled Capitec, thereby unlocking R21 billion of value for PSG Group shareholders. Despite this value unlock exercise, PSG Group continued to trade at a 30% discount.”

Investment holding companies currently trade at substantial discounts to fair value with the average discount being more than 40%. This is not just an SA phenomenon, but globally the investment holding company vehicle appears to have fallen out of favour, with private equity funds and unit trusts taking preference, said Mouton.

In addition, investors seem to prefer to be directly invested in operational companies rather than through an investment holding entity, he added. “The simple fact is that the large investment holding company discounts negate one of the primary reasons to be listed, being one’s ability to raise capital in the equity markets.

“If an investment holding company was to raise R100 while trading at a 30% discount, it would be worth R70 immediately thereafter – that is serious value destruction! This leads to investment holding companies hoarding cash for potential future transactions, thereby becoming significantly more conservative; however, cash diminishes returns and combined with greater conservatism in managing the portfolio, it reinforces the discount principle,” said Mouton.

PSG Group said it believes the proposed transaction provides an eloquent solution to resolve the discount conundrum, given that shareholders receive a significant premium to the current share price.

In addition, by taking PSG Group private, it should significantly alleviate the regulatory compliance burden associated with being listed and allow management to focus on business.

“The companies which we are unbundling all have exceptional management teams, experienced boards, are well-capitalized, and have exciting growth prospects,” Mouton said.

“We believe they will benefit from greater liquidity and their chances of being included in indices should improve significantly as a result of their larger free float. Furthermore, the founding shareholders have committed to retain their shares in these unbundled companies. Simply put, these companies are an intricate part of what made PSG Group, we believe in them and their prospects, and we intend to hold onto our direct shareholding going forward”.

Chris Otto, one of the founders of PSG Group, said: “It is the end of an era for this iconic investment business that was started by the legendary Jannie Mouton and me in November 1995. However, our goal and that of management has always been to create value for our shareholders and the continued discount situation inhibits PSG Group to achieve this. I believe this is a bold move by current management but the right thing for shareholders”.

The transaction is subject to, inter alia, shareholder and regulatory approvals. Once a final announcement is published and if there are no major delays, the transaction should be concluded towards the end of August this year.

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