Cautionaries spark talk that HCI may offload KWV

Mister-E via Wikimedia Commons

Market talk is that well-known business personality Vivian Imerman - who headed JSE-listed food conglomerate Del Monte in the eighties and nineties - is driving negotiations with HCI. HCI holds sway at KWV through listed subsidiary Niveus Investments, which has a 57% stake in the group.

It seems likely Imerman will pursue KWV through the London Stock Exchange and JSE-listed Sacoven. Sacoven - a special purpose acquisition company aligned to Imerman - yesterday advised that a cautionary, dating back to November, was still in force. The company said it was still in talks with "respect to the potential acquisition of an FMCG (fast moving consumer goods) business located in Africa". Niveus later issued its own cautionary and last night KWV put out one too.

HCI initially bought an influential 31.8% stake in KWV in 2011 when PSG-controlled investment company Zeder sold its shares after failing to gain shareholder support for a merger with Pioneer Foods' Ceres Beverages.

Product diversification necessary

Although value-laden in terms of properties and liquor stock, KWV has proved a challenging business for HCI, as it has been difficult to diversify from the core brandy and wine brands. While the wine market has looked sprightlier of late, the shrinking local brandy market has proved particularly tough for KWV - which has stoically stuck to a policy of "premiumising" its brands.

Minority shareholders and investment analysts have long contended that KWV desperately needed more product diversity to leverage production capacity and profitably boost top line growth.

Imerman is well versed in the ways of the liquor industry. He managed a spectacular turnaround at Scotch whisky maker Whyte and MacKay, which was then sold at a great profit to liquor conglomerate United Spirits in 2007.

KWV value

While KWV has battled for sustained profit growth, the company's brands - which include Roodeberg and Cathedral Cellar as well as its eponymous brandies - have won a slew of international awards, and certain products have carved out strong offshore niches. Turnover in the 2015 financial year was R1.155bn.

Market sources stressed that a testing point for any possible deal at KWV would be the price. The last traded over-the-counter price for KWV was less than 600c per share. But HCI - which paid R11.80 per share to buy out PSG's stake in 2011 - would probably demand a price tag that is closer to the official (albeit conservatively stated) tangible net asset value of R18.63 per share.

There are suggestions that Imerman might covet only KWV's operational assets - meaning that there might be scope for HCI to retain the company's legacy assets. These include a valuable art collection and Wineland properties.

Source: Business Day