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Wheeling and dealing on the ZSE

At The Market with TetradBy Admire Mavolwane

CORPORATE transformations have come to the fore over the past week or so with Century Holdings, Rio Tinto and Tedco tabling material

transactions to shareholders that will change the operating structure of all three companies.





Century published details of its “marriage” to CFX Financial Services. The deal comes against the background of liquidity constraints which had forced the main subsidiary, Century Bank, to resort to the Troubled Banks Fund for help.


The liquidity problem was compounded by the group’s association with a major shareholder, the collapsed ENG Capital.


The merger, which has already been approved by the RBZ, will be effected by way of a share swap. Century will sell three wholly-owned subsidiaries, Century Bank, Leasing Company of Zimbabwe and Century Asset Management to CFX Financial Services in exchange for 50% of the issued share capital of the latter.


Century Holdings will then distribute 80% of the CFX Financial Services shares, which is 40,05% of CFX, to its shareholders through a dividend-in-specie on the basis of two CFX shares for every five Century shares held.


Century Holdings will retain 9,95% of CFX as a provision against a claim by the Century Discount House liquidator, a condition agreed by all parties.

Should the proposed deal be approved by shareholders at an EGM to be held on June 24, the ZSE listing will be transferred from Century Holdings to CFX. The former will convert into a non-listed public company.


On the CFX listing, original CFX shareholders will own 50% of the shares, while the Century Holdings shareholders and Century Holdings Ltd will control 40,05% and 9,95% of them respectively.


Rio also made public its restructuring proposals. These seek to turn the company into an independent Zimbabwean controlled entity by converting the 56% (12,5 million shares) held by parent company Rio Tinto plc into a single non-listed special dividend share, thus reducing the number of shares in issue from 22,5 million to 10 million.


The arrangement, which has since been approved by regulatory authorities, will, subject to shareholders’ approval to be sought at an EGM scheduled for June 22, see Rio plc owning 78% of the Murowa Diamond project, up from 50%, while RioZim’s shareholding would be diluted from 50% to 22%.


The transaction was motivated by the fact that the gold mining and nickel assets of Rio no longer met the investment criteria of Rio plc, which had indicated its willingness to disinvest and focus on the Murowa Diamond Mine.


Finally, we take a look at Tedco. The company’s board announced the receipt and acceptance, subject to shareholder approval, of an offer by Steinhoff Africa Holdings on behalf of Investco, a Zimbabwean company in the process of incorporation to be owned 50,1% by Steinhoff Africa Holdings (pty) Ltd, and 49,9% by A Simba Holdings (Pvt) Ltd, for the acquisition as at December 31 2003 of the operating assets and inventory of wholly-owned subsidiary, Tedco Industries.


Steinhoff is a wholly-owned subsidiary of Steinhoff International Holdings Ltd, a JSE-listed company, and is an integrated lifestyle supplier whose manufacturing operations include furniture manufacturing as well as the importation of specialist furniture products. A Simba Holdings is a company owned by a significant shareholder in Tedco.


The board has agreed to the deal on the basis that its manufacturing arm, Tedco Industries, has been experiencing various serious operational challenges, namely a sharp drop in demand levels since November 2003 and a lack of competitiveness in its exports following the monetary policy statement announcement.


Tedco requires significant capital investment in order to re-tool and grow the business while the retail division also requires substantial capital injection. The directors are also of the opinion that given the current economic environment, Tedco is not in a position to mobilize enough resources to serve the two divisions, hence the proposal to sell the assets of Tedco.


If approved, the transaction will realise cash resources in excess of $8 billion which would go towards the recapitalisation of the remaining retail business. Tedco Industries, which will remain a wholly-owned subsidiary of Tedco Ltd and in the long-run may become a dormant company, will retain the remaining assets totalling about $11,9 billion and assume responsibility for the outstanding liabilities adding up to $8,2 billion.


The directors have also agreed, in principal, to recommend a special dividend of $6 per share in the form of cash or scrip “as a way of recognising and rewarding shareholders”, conditional upon the transaction being effective.


While on the face of it the deal would seem an attractive proposition questions remain in our minds as to whether it is in the long-term interests of minority shareholders. These include why, if the business environment is as unattractive as the notice to shareholders professes, Tedco’s significant shareholder would be willing to further commit his own funds to an ailing operation?


Surely this suggests that long-term value exists in the business and if the value is there, then should a rights offer not have been the way to go?


Also, if the deal on its own is positive for shareholders, the dangling of a carrot by way of the special dividend being offered if it is approved would seem unnecessary. This is particularly so given the fact that on the one hand the company is said to require recapitalization yet on the other the directors propose a $1,6 billion payout to shareholders! A bit of a contradiction we would say.


The EGM set for June 24 should prove interesting, as the board will hopefully shed light on these, and other questions from shareholders.

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