Move to simplify Distell's pyramid

But an initiative to simplify the pyramid holding structure of JSE-listed Capevin Investments and unlisted Capevin Holdings has been greeted with some cheer. As a result, the see-through discount on the underlying holding in Distell has narrowed to 15% at Capevin Holdings after being as high 37% in mid-February.

At first glance, the proposal to simplify the control structure might look more like trying to shove the cork back in the bottle rather than pouring out all of Distell's value.

The most obvious first move to dismantle the pyramid would be to collapse Capevin Holdings into listed Capevin Investments. This would then trigger efforts to unbundle the underlying stake in Distell.

What is proposed is that shareholders in Capevin Investments swap their holdings for scrip in unlisted Capevin Holdings, which then will have to be listed on the JSE.

There is an official reason why Capevin Holdings cannot simply be collapsed into the already listed Capevin Investments: "Due to the nature of certain commercial arrangements to which Distell Group Ltd is a party, including certain trademark agreements, the retention of Capevin Holdings as the ultimate holding company is required to remain in place."

Though the details of these arrangements (believed to date back decades) are not public, investors might worry that such antiquated arrangements effectively mean retaining the Capevin Holdings structure in perpetuity.

A liquor industry source notes: "From a theoretical perspective, these arrangements do mean the long-term retention of the Capevin Holdings structure. But, from a practical perspective, it seems unlikely that the arrangements will stay in place forever."

The source points out that the arrangements do not affect all aspects of Distell's business, and mainly concern spirits brands.

"What is patently clear is that this segment of Distell's business is getting smaller on a relative basis. Whether it's worth breaking the long-standing arrangement will depend on how big this specific segment of Distell's spirits offering is in three to five years."

Source: Financial Mail