Consol Wake-up Call
The unprecedented interest shown recently by private equity firms in prize assets on the JSE has been met with considerable vehemence by South African investors.
Private equity suitors have been called all sorts of unflattering names ”” from raiders of prime stocks to vultures who unscrupulously deprive small investors of the massive opportunities presented by an economy on the boil.
One of those prospective private equity takeovers ”” the R13,2bn offer for retail giant Shoprite ”” has in fact so attracted the wrath of investors that some investment houses are threatening legal action to protect the rights of minorities.
That surge in shareholder activism should be lauded. Finally the representatives of investors are standing up for minority rights, demanding greater fairness in the marketplace and generally making all the right sounds that should translate into a keener pursuit of good corporate governance.
All of that having been said, however, there also is another side to the coin. Private equity firms move in where they perceive that businesses are undervalued, and the valuation of publicly listed stocks are a function of a free market system.
Investors drive that value, and if some private equity firm sees potential where the general market is not prepared to attach more value, and is prepared to take on the added risk, it’s only fair that it should be allowed to do so.
The offer by Ethos for glass packaging company Consol is an example of this.
Ethos’s offer presents a massive premium to the share price. Consol’s profits on first appearances may not seem overly exciting. Yet its great ability to generate cash should have been recognised by the market.
Even so, the performance of Consol’s share price has simply not matched the company’s real value. As one analyst justly points out, the Consol case should really serve as a wake-up call to the investment community.