Who let the dogs out? And more particularly who let them out 24 hours too late (for some unhappy investors)? The Pravin Gordhan is-about-to-be-arrested shoe finally dropped on Tuesday. It’s difficult to imagine more than five or so people thinking this wasn’t an appalling development.
It’s likely not even SABMiller’s SA shareholders would have been desperate enough to hope for some resurgence in the rand-destroying talk of a move on Gordhan. The shareholders needed a weak exchange rate to maximise their rand proceeds from the transaction. They didn’t get it. Instead they were forced to look on in quiet panic as the rand moved ever upwards.
Sadly for them, until Tuesday’s dramatic news, the rand was enjoying a remarkable period of strength, thanks largely to other people’s political mess. Who would have ever thought that it would be UK political risk, and not South African, that would wreak destruction on our investors?
News of Gordhan’s pending arrest put an end to the rand’s rally. But it was too late, by just 24 hours, for the SABMiller shareholders. The calculation of the rand payout of £45/share was based on the average exchange rate of the three weeks to Monday 10th.
For much of the past few weeks there seemed to be remarkably little sign of anything that might rattle the forex market. The recent strength of the rand probably had as much to do with the temporary lack of political machinations as with the fact that banks were buying up the currency in anticipation of paying out the 14% or so of SABMiller shareholders who are on the SA register. That 14% is equivalent to £10.5bn of the total £75bn price tag.
In November last year around the time Anheuser Busch InBev announced its enormous £74bn (it was nudged up to £75bn after Brexit) bid for SABMiller the local shareholders were set to collect R228bn for their share. On December 12 the SA stake was worth R252bn.
On October 10, just two days before local shareholders were due to get paid out, the value of that stake had slumped to R178.6bn as the rand hit a three-year high of R17.01 against sterling. Fortunately the rate at which shareholders will be paid out will be the average over the preceding three weeks and not the bottom to which it slumped after the UK Conservative Party conference.
Those who know anything about behavioural finance will realise that by now many of SABMiller’s SA shareholders will be feeling they lost out badly from the country’s largest-ever corporate transaction. In November 2015 they believed they were going to get at least R870 for each of their SABMiller shares. By mid-December this had increased to about R960 and, given President’s Jacob Zuma propensity for destruction, the sky looked to be the limit.
The final payout is significantly less and is certain to prompt some sellers’ remorse. Did we have to sell? Was it inevitable? Could we not have done better with Heineken?
Were the top management team too dazzled by the huge sums they were due to receive in a takeover to give appropriate thought to a Heineken tie-up?
Perhaps a Heineken tie-up would have been more exciting for the beer world but by the time CEO Alan Clark fumbled that opportunity, the die was already cast. The powerful financiers behind AB InBev were determined to do this deal.
These days it seems that by the time a mega-transaction has been announced and the corporate advisers let loose, it’s pretty much a done deal. By the announcement stage all the important work has been done; the structure and pricing of the deal has been set to ensure the backing of the big players including the powerful hedge funds; nothing is left to chance.
Having lost out on the forex front, SABMiller’s SA shareholders are now looking at the depressing prospect of a considerably weaker rand.