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To unbundle or not? Bidvest's latest!

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Industrial conglomerates     

Bidvest   

“D-Day”

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Today, Monday 16 May at 10 o’clock, there is a Bidvest general meeting to vote on the unbundling of the Foodservice assets. In terms of section 112 Companies Act, 75% approval is required.

Therefore, a vote in favour given this high threshold is not a fait accompli but management engagement with institutional shareholders these past weeks and months, locally and abroad, suggests fund managers and analysts are broadly favourable to the initiative.

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Institutions own over 90% of the company and over half of shareholders by percentage are overseas. Of the offshore fund managers, 90% have an “emerging market” mandate and thus Bidvest South Africa (housing all assets other than Foodservice) would fall squarely in that category whilst Bidcorp (the listed name for the Foodservice assets) is a mix of developed economy and emerging economy assets.

Assuming the shareholders give the nod then the unbundling will take place on 30 May 2016. Last day to trade in Bidvest shares on the JSE to participate in the unbundling is 27 May 2016. All current Bidvest shareholders receive one Bidcorp share for every one Bidvest share held now and thus end up with a share in two companies rather than one.    

Bidvest is fair value at R350 to R360 per share. On unbundling Bidcorp (Foodservice) I estimate should theoretically trade at a premium of 25% to the Bidvest South Africa assets. As there is obviously no share price history with respect to the Foodservice assets it will take a little while for Bidcorp to find its market clearing price level.

At this point, we don’t know if some institutional investors will lighten or upweight relative to their current holding in a single entity. Some funds may favour one over the other and so this could affect pricing due to demand for scrip and the supply of scrip.

Bidvest got a ratings upgrade this past week from Moody’s Investors Services, recalibrating Bidvest’s national scale long-term issuer rating by three levels to Aa1.za from A1.za. Moody’s assigned a global scale rating of Baa2 local currency and Prime-2 short-term, in line with the sovereign.

Due to the proposed unbundling of the foodservice businesses from Bidvest, a negative ratings outlook was assigned pending analysis post-unbundling. Detailed financials of the pro-forma position of the two companies were included in the pre-listing statement and the circular so it is likely that Moody’s would have taken note. Ratings agencies are renowned for covering their backsides and hence the negative outlook.

Post-unbundling, Bidvest will have a pro-forma asset base of R44 billion, pro-forma shareholders’ equity of R20 billion, annualised turnover of approximately R100 billion and EBITDA of close to R8 billion. Net debt, based on the December 2015 position, will be R7,8 billion and in line with EBITDA.   

Post-unbundling, Bidcorp will have a pro-forma asset base of R58 billion, pro-forma shareholders’ equity of R50 billion, annualised turnover of in excess of R120 billion and EBITDA of close to R6 billion. Net debt, based on the December 2015 position, will be R4,3 billion.    

The Moody’s three-notch upgrade is unusual and testament to the strength of Bidvest’s fundamentals as a business.

The ratings agency cites a strong operational and financial profile together with a history of low financial debt leverage, healthy interest cover and good cash flow generation. Moody’s further cites a diversified source of revenue across a range of businesses, a solid and expanding international footprint and an experienced management team with a successful track record of organic and acquisitive growth with acquisitions effectively integrated into the Bidvest network where appropriate while being managed on a decentralized basis.

Trading Buy and Portfolio Buy maintained with fair value at R360.

Estimates for Bidvest  

Source: company and MN Ingham

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Bidvest share price in ZAR cents

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