daniel chigunwe
Nelson Gahadza
TSL Limited in 2022 announced it had entered into negotiations for a potential acquisition transaction in a complementary business.
Fast forward: in 2024, the company made a US$25 million offer for a 51.43 percent stake in Nampak Zimbabwe, which is being disposed of by its parent company, Nampak South Africa.
TSL operates as a holding company, which comprises the auctioning of tobacco, printing and packaging, supply of inputs to agriculture, storage and distribution and services. It operates through segments such as logistics, agriculture, real estate and services.
Nampak Zimbabwe manufactures and markets packaging products, which include paper, plastic, and metal packaging.
FBC Securities, in its review of the transaction, said if TSL can realise strong strategic synergies with Nampak Zimbabwe, such as combining their operations in packaging, distribution, or logistics the deal might make sense.
FBC said since TSL is valuing Nampak Zimbabwe at US$48.61 million, well above the current market capitalisation of US$22 million unofficially, this could indicate that Nampak shares are currently undervalued.
“If the deal is finalised at this higher valuation, Nampak’s stock price may rise to reflect the value implied by the acquisition, providing potential gains for shareholders who buy shares at current prices,” reads the report by FBC.
TSL, in a notice to shareholders on Wednesday, said it is now engaged in the processes to finalise and execute the sale and purchase agreement with Nampak SAHL.
“The company has commenced the process of preparing a circular to shareholders that will contain full details regarding the transaction, a notice for the extraordinary general meeting (EGM), requisite shareholder resolutions for the transaction and other required statutory and regulatory approvals,” TSL said.
According to TSL, transactions will require shareholder approval, which will be sought at an EGM; hence, there is a need to exercise caution when dealing in the company’s securities.
Sylvester Mupanduki is a financial analyst specialising in equity investment research. Commenting on the transaction on his LinkedIn account, he said Nampak’s value has increased by 40 percent in USD terms, based on official RBZ rates, bringing the market cap to approximately US$34 million, relative to his estimated intrinsic value of around US$41 million.
“Given this, the US$25 million offer for the 51.43 percent stake appears reasonable and fair,” he said.
He said nine months ago, he believed Nampak was trading at a huge discount to intrinsic value; hence, TSL Limited made a timely decision to make an offer when the price appeared favourable.
He said in the first half of 2024, Nampak volumes were lower than anticipated, which aligns with his expectations in the quoted post due to decreased activity at Hunyani Paper and Printing, primarily influenced by lower tobacco uptake.
According to FBC, TSL is effectively valuing Nampak Zimbabwe at US$48,61 million, which is more than double its current market cap based on the unofficial rate (US$22 million) and significantly higher than its market cap at the official rate of US$30 million.
“This suggests that TSL is either highly confident in Nampak Zimbabwe’s future prospects or is overpaying for the stake.
“Paying such a premium may raise concerns for TSL shareholders, particularly if the acquisition does not deliver the expected synergies or if the market capitalisation of Nampak does not rise to justify the valuation,” reads the report.
TSL revenue for the quarter to July 2024 was 13 percent ahead of last year, mainly due to the volume growth in the logistics business. About 83 percent of group revenue was generated in USD cumulatively at the end of the quarter. But the group noted that a significant crystallisation of US$ costs was noted in the quarter, resulting in US$ inflation.
In a statement, Nampak Zimbabwe said the disposal remains subject to various suspensive conditions, including the conclusion of binding transaction agreements and obtaining all necessary regulatory approvals.
In terms of the Companies and Other Business Entities Act (Chapter 24:31) and the Zimbabwe Stock Exchange (ZSE) Listings Rules, the purchaser is required to make an offer to the remaining shareholders of Nampak Zimbabwe following the disposal being implemented.
“The purchaser has confirmed that it has the capacity to undertake the mandatory offer within the regulated timeframes, through settlement by either cash or by way of a share swap using its own shares.
“For the avoidance of doubt, the mandatory offer will be implemented by the purchaser independently, following the implementation of the disposal, and without any involvement of Nampak,” it said.
Nampak noted that a further announcement will be released once the binding transaction agreements have been executed, following further negotiations.
It said the rationale for the disposal is in accordance with Nampak’s asset disposal plan; the company is an asset of high value, being prioritised for disposal.
In a trading update for the quarter to June 30, 2024, Nampak Zimbabwe group volumes were 2 percent ahead of the prior year, with most of the product lines higher than last year except for high-density polyethylene (HPDE) and commercial cartons, which were affected by a slowdown in demand and increased competitor activity.
Cumulative volumes for the 9-month period to June 2024 were 3 percent below prior year due to volume recoveries in the current quarter, which have made up for the volume losses in the previous quarter, particularly in the paper cluster as well as in metals.
Bongani Ndlovu