Subscribe

Institutions spurn Softline's offer

By Iain Scott, ITWeb group consulting editor
Johannesburg, 22 Apr 2003

The market has not taken kindly to Softline's offer to pay minority shareholders 130c by way of a liquidation dividend.

The accounting, payroll and tax software group announced last week that it was being bought by a consortium made up of "certain" members of Softline's senior management and non-executive directors and Investec Bank.

Once the disposal becomes unconditional, Softline plans to distribute the net proceeds to shareholders by way of an advance liquidation dividend. Softline will be delisted from the JSE.

However, several brokerages are advising their clients not to accept the offer as they believe the group is worth more than 130c a share.

Old Mutual Asset Management has reportedly rejected the offer as being too low, as has Metropolitan Asset Management (Metam), which owns 2.7% of Softline's shares.

Metam chief investment officer Asief Mohamed says Softline is "definitely worth more", although he would not be drawn on what Metam considered fair value.

"We have been an investor for a long time in the stock," he says. "Shareholders have taken pain along the way and now they want to take it off the market."

He says although Softline says it consulted its main shareholders, that does not mean it received widespread approval.

"They did come to see us. They say they consulted but what does that mean? They told us what they were planning to do, but it doesn't mean we said yes."

However, Softline investor relations director Lara Jawitz says the process has been open and consultative.

"We started lower than R1.30, and only after consulting with our major shareholders did we then come to R1.30," she says.

"We as management have always seen value in the company, but the market hasn't valued us. I got a call from a shareholder this morning saying that a share price is not the only indicator of the value of a company, but at the end of the day the buy and sell price on the JSE is the value the market places on a company."

She says the offer represents a premium on the share price over the past two years and presents shareholders with a good opportunity.

"We have been the subject of a lot of negative comments over the past three years, often from the same people who are now saying there is more value in the company."

Jawitz says a lot of detail is not yet available to shareholders because the deal has not yet been signed. The company is expected to announce further details on or around 19 May.

The asset managers are joined by several brokerages in rejecting the offer.

"They wouldn't be offering 130c if they weren't getting a big bargain," says PSG Online analyst Uys van Straaten. "You could argue that the share has been trading lower than 130c but if the market recovers it will move beyond that.

"If you're a long-term investor who bought the share after doing all your research and analysis, this won't be a good move. A minority shareholder could have been sitting with the share for two or three years hoping that it goes back to R2, which it could because Softline is a good company."

He says the last interim results showed that the return on equity was almost 30% and cash generation was good.

"Softline is a good, stable business. But as always the smaller investor tends to get the raw end of the deal."

Van Straaten is critical of companies delisting in a bear market. "A company takes a knock or gets into trouble and then the share price reacts. Sometimes it's the end of the company, but at other times they manage to deal with it and get things right. Then, just before the share goes up - which is the reason people invest in the first place - they take advantage of the low price and take it off the market."

While he did not want to comment further, a spokesman at brokerage Tradek says his company also feels the offer is not high enough.

The Softline share was trading unchanged at 124c late this morning.

Share