These 10 JSE companies are ripe for buyouts

South African assets are dirt cheap. Why else have a Remgro-led consortium and the family-controlled Heineken Group acquired Mediclinic and Distell respectively? These are prize assets. Together, the deals totalled over R110 billion.

Including the two stocks, a total of 11 JSE companies had delisted from the exchange by the midway point this year. Many of these have been ‘rats-and-mice’ type shares (think the likes of Etion, Hwange and Jasco) with market caps well under R1 billion.

A further 13 shares (including once mighty Tongaat) remain suspended, with their delisting likely. Steinhoff will disappear from the JSE this week. 

Here are 10 other likely takeover targets on the market, either due to price weakness (valuation), turnaround potential, lack of liquidity, or strategic value. None of these are stuck away in dark corners of the market, and all have market capitalisations of more than R2.5 billion.

Of course, with the weaker rand, many of these assets are the cheapest they’ve ever been when measured in hard currency (dollars, pounds, euros, renminbi). Today, R10 billion is barely $540 million …

AngloGold Ashanti (market value: R135bn)

The gold producer shifted its primary listing to the New York Stock Exchange earlier this year, and CEO Alberto Calderon admitted to Miningmx that “it would be disingenuous to think being listed in New York would not, on the margin, increase the ability [of AngloGold becoming] a takeover target”.

Read: AngloGold Ashanti shares fall after first-half profit drop

Following the acquisition of Newcrest by the world’s largest gold producer Newmont (with total production of 8 000 kilo-ounces [koz] last year), AngloGold Ashanti (2 800koz) definitely looks somewhat appealing in its tidied-up form (that is, excluding any links to South Africa). 

MultiChoice (market value: R34.5bn) 

Shares in the pay-TV operator plumbed fresh 52-week lows on Monday, at around R77. France’s Canal+ has been a keen buyer (it holds 31.7%), and while it has said it views its stake as an “investment”, there has been more than just some conjecture that the French outfit could look to acquire the entire group.

Read: French broadcaster Canal+ lifts stake in MultiChoice

The attraction is not the South African unit, which continues to churn cash, but rather the rest of Africa operations that complement the Canal+ operations in Francophone Africa. An outright merger would see layers and layers of costs removed, especially pricey satellite transponder leases. 

Quilter (market value: R27bn)

The UK-based wealth manager spun out of Old Mutual has struggled since its listing. Shares are down 52% in pound terms since June 2018 (the picture on the JSE looks slightly better, down 37%, due to the rand’s weakness). Last year, NatWest mulled a bid for Quilter as consolidation across the UK market continues (Investec merged its UK wealth business with Rathbones in April).  

Read: £839m Investec UK/Rathbones merger gets regulatory go-ahead

Barloworld (market value: R16.2bn)

The new, stripped-down Barloworld offers investors (and would-be suitors) a far more attractive proposition than the relatively sprawling conglomerate from five or more years ago. Gone are the automotive retail and vehicle rental (Zeda) businesses. What’s left are yellow metal (Cat industrial equipment licensees) businesses in southern Africa, Siberia and Mongolia, as well as the old Tongaat starch business.

Read:
Barloworld to unbundle stake in Avis through separate JSE listing
Zeda lists on the JSE, after being unbundled from Barloworld

Following Russia’s invasion of Ukraine, the fact that it’s retained its Russian operation probably makes any buyout tricky. Still, this is one to watch in the medium term. 

Telkom (market value: R14.4bn)

Telkom has been a buyout target for much of the past two decades. Almost everyone’s had a sniff, most recently a consortium fronted by former CEO Sipho Maseko. MTN may yet have a tilt at a stake in the prime Openserve fibre unit, which has more fibre in the ground in South Africa than all other operators combined.

Read/listen: Sipho Maseko is not impressed with Telkom

Any takeover would need buy-in from the government, which, until now, has been elusive. 

RCL Foods (market value: R10bn)

Remgro’s sugar, grains, groceries and chicken business (Rainbow) is slightly simplified now that Vector Logistics has been disposed of. Still, the chicken business is not even halfway through a turnaround. Spinning that unit out of the group is probably necessary before any attempt by Remgro to buy out minorities (it already holds 74.9%, with an employee share trust owning a further 4.7%).

Read: Is Remgro planning its exit from the JSE?

The grand plan, surely, is to merge RCL Foods (excluding Rainbow) with Remgro’s privately held Siqalo spreads business (Flora, Rama, Stork). 

Adcock Ingram (market value: R9.5bn) 

Here, too, the business has a large and supportive major shareholder (in this case, Bidvest with 55%). Although not the neatest fit with the rest of Bidvest’s services business, it trades on a PE (price-earnings ratio) of 10 while Bidvest is currently on a PE of 17.

Read: Prescription, OTC meds boost Adcock’s profit

At some point, the group will surely figure that the costs and admin of keeping the unit listed simply don’t add up, or it may seek a trade sale (there aren’t any obvious local buyers and the last time a foreigner – Chile’s CFR – tried to buy it, Bidvest ended up in the peculiar situation of owning a pharmaceutical business). 

Mpact (market value: R4.5bn)

Caxton has been steadily acquiring shares in paper and packing group Mpact for a number of years.

At the end of 2022, Caxton held 33.95% of Mpact. A dispute between the two parties continues, but Mpact remains an attractive asset (especially for Caxton, which operates in a market in structural long-term decline). In the year-to-date, Mpact shares are up 3%. 

Listen: Mpact a bargain following strong results

City Lodge Hotel Group (market value: R2.7bn)

City Lodge’s turnaround following the Covid-19 pandemic has been convincing. It’s permanently driven its cost base lower, reduced debt levels, and an overhauled food and beverage offering is showing promise. The market is taking notice. Shares are up 62% from August 2020 (as lockdowns began easing), although the price is down 12% this year.

Listen: City Lodge bounces back as occupancies rebound

In May, gaming group Tsogo Sun (which offloaded most of its hotel assets as Southern Sun) announced it had acquired 10% of City Lodge. It is unlikely this will remain a passive minority holding. 

Libstar (market cap: R2.6bn)

Libstar has disappointed since its 2018 listing, with shares down 67%. It has assembled a selection of very interesting businesses, some of which have attracted suitors in recent years, but there are underperforming and unattractive units, too.

The problem with selling the best assets in the group is that you’re left with something wholly unappealing.

It trades on a ‘bargain’ PE of 8.5. Private equity group Actis owns 37% of the group after Abraaj sold its stake. At some point, this investor would want to exit. Tough when shares are at multi-year lows …  

Read:
The shocking performance of ‘defensive’ stocks over the past 5 years
Royal Bafokeng Platinum joins JSE delistings rush
JSE showdown: Dogs vs winners YTD

Disclosure: Caxton’s majority shareholders are also majority shareholders in African Media Entertainment (AME), the owner of Moneyweb.