SA firms have investment edge
January 19, 2009
By Ethel Hazelhurst
Johannesburg: Cash flush South African companies "will be cushioned from strife-ridden global markets" this year, according to a report by mergermarket, an international mergers & acquisitions (M&A) intelligence service.
The report, released last week, comes at a time when global companies are short of cash, borrowing costs are high and the outlook for M&A activity is poor.
The report predicts that local firms' access to cash will allow them to make "a certain amount of targeted investment, some of it perhaps offshore".
The report identifies the telecoms sector as the one that is most likely to show increased M&A activity.
It says: "Vodafone's acquisition of an additional 15 percent stake in Vodacom, bringing its total holding to 65 percent, has opened up the industry to increased competition and an expected tussle to acquire available voice and data targets across sub-Saharan Africa."
It says the resources sector "faces tough times due to the negative global outlook", making it "a prime target for consolidation".
The report adds: "Consumer-related industries in South Africa could also flounder, due to higher interest rates impacting their customers' pockets.
"This is likely to lead to stronger players targeting their smaller competitors."
According to mergermarket, M&A activity involving local companies fell sharply last year, by 45.8 percent, to $14,4 billion (R143.4 billion).
Referring to cross-border transactions, it says UK firms were the dominant investors, with 13 deals valued at $3.2 billion, or 76 percent of the overall value of inbound deals.
Referring to total transactions, it says the telecoms sector experienced "the highest total deal value, with five deals worth a total of $3.76 billion, an impressive increase to the $11 million of activity in 2007".
The mergermarket estimate of total deal value last year differs from that supplied earlier this month by Thomson Reuters, which put the total M&A value involving South African firms at $24.1 billion.
A spokesperson for mergermarket said its list included deals "only where a definitive agreement has been signed or, in the case of listed entities, where a formal or firm offer has been made.
Indicative offers like Impala Platinum's proposed bids for two local listed firms would not be included."
These two deals in the platinum sector were worth an estimated $3.7 billion combined, according to Thomson Reuters.
Impala Platinum announced last week that it was unable to agree on a price with Northam Platinum and Mvelaphanda Resources, which controls Northam, "due to the ongoing volatility in commodity and equity prices and to the continuing uncertainty as to the course of the world economy".
This followed a fall in the platinum price from a high of $2 250 an ounce at the end of last February to less than $800 by October.
The biggest deal last year, according to mergermarket, was the "partial spin-off of a 9.6 percent stake in British American Tobacco [BAT] by Remgro, to its shareholders. It was part of a wider restructuring of crossholdings with Luxembourg-based Reinet Investments".
The transaction is valued at close to $7 billion.
This deal did not figure on the Thomson Reuters list because Swiss-based Richemont owns the bigger stake - 65 percent - in R&R, the joint venture vehicle with Remgro that made the BAT acquisition.
"So the ultimate parentage falls under Switzerland, according to our criteria, and not South Africa," said Paul Sandell, a spokesperson from Thomson Reuters.
The next biggest transaction listed is the UK Vodafone Group's $2.1 billion additional stake in cellphone network provider Vodacom.
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