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SALE OF SOURED STAKE IN CLOVER OPENS DOOR FOR HCI

EMPOWERMENT group Hosken Consolidated Investments (HCI) could use the cash it receives from the sale of its 35 percent stake in milk producer Clover Industries to increase its gaming interests. Rob Forsyth, the head of industrial snares at Investec Asset Management, said gaming interests constituted the largest proportion of HCI’s portfolio. HCI owns 74.7 percent of Tsogo Investment Holding, which in turn holds a 51 percent share in Tsogo Sun.

Last month leisure group Gold Reef Resorts proposed a S2.23 billion (R16.5bn) merger with Tsogo Sun to create one of the biggest casino groups in Africa, the Middle East and Europe.

Gold Reef proposes to buy Tsogo’s entire issued share capital with its own new shares.

HCI will own 41.1 percent of the merged group. The merger is still subject to approval from competition authorities.

“When this deal goes through, HCI will want to make it a more focused, more cash-generative pursuit by using the funds from the Clover transaction,” Forsyth said.

HCI yesterday announced the sale of its stake in South Africa’s biggest milk producer.

Analysts believe the relationship between the two companies had soured over a lack of restructuring at Clover.

HCI’s chief executive Johnny Copelyn said that it had become fairly clear over the past couple of years that HCI’s vision of the potential future of Clover differed from the views of its dairy producer shareholders.

HCI owns both preference and ordinary shares in the group. It will divest from both. Clover will pay HCI R337 million for the 35 percent of ordinary shares it holds. A special dividend of R4.10 a share will be paid to holders of Clover’s preference shares, amounting to R156 million for HCI’s shares.

HCI’s remaining investment in Clover will be an amount of RllOm in the form of rights attached to the preference shares, which Clover will be obliged to redeem in three years’ time.

“For HCI, Clover was a turnaround business but it turns out a lot of the restructuring that HCI had planned was not well accepted by Clover’s board,” said De Wet Schutte, an analyst at Avior Research.

According to Schutte, many of the issues stemmed from Clover’s farmer shareholders.

“Delivery agreements between Clover and the farmers mean that if there is an oversupply of milk in the market, ‘ the preference shareholders would suffer more than ordinary shareholders,” he said, adding that it was this “misalignment of interests” that led to the difficult relationship between the two companies.

“There are a lot of the smaller investments in HCI that are viewed as turnaround strategy- themed investments. Some, like clothing and textile group Seardel and automotive parts company Formex, have suffered in the Oast) 18 months and have made losses,” Schutte said. “But HCI won’t sell these now.”

Matthew Kreeve, a portfolio manager at Element Investment Managers, agrees: “HCI has usually got a number of interesting options that others can’t undertake.”

HCI rose 3.9 percent to R80 on the JSE yesterday.

Source: Business Report – Florence de Vries