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HCI’S OFFER FOR KWV IS UNFAIR, SAY DIRECTORS

31 Jan KWV Holdings

The independent members of the KWV board have told KWV shareholders that the R8.50 a share offer from Hosken Consolidated Investments (HCI) is not fair.

The offer is between 34 percent and 50 percent below the valuation range determined by KPMG, the details of which are included in the shareholder circular that was sent to KWV shareholders last week.

The recommendation from the independent members of the KWV board, in terms of the requirements of the Companies Act, is based on the “fair and reasonable” statement provided by KPMG. The “fair and reasonable” statement contained in the circular has prompted a number of KWV shareholders to demand that they be given sight of crucial property valuations that informed KPMG’s opinion.

KPMG, which stated that the offer was not fair, told KWV shareholders: “We determined a valuation range… of R11.40 to R12.73 per KWV share with the most likely value of R12.07 per KWV share.”

However, KPMG adds that, based on a number of other considerations, “we are of the opinion that the terms and conditions of the mandatory offer (from HCI) are reasonable in the circumstances”.

It explained that the assessment of “fairness” was based primarily on quantitative issues and the assessment of reasonableness was based on “qualitative considerations surrounding the transaction”.

The factors that KPMG considered in evaluating the fairness of HCI’s offer of R8.50 a share included the most recent unaudited management accounts for the five months to November 2011; discussions with the directors and management of KWV to establish its strategy, including an assessment of the prevailing conditions in the alcoholic beverage industry; KWV’s financial forecast for the three years ending June 20, 2014; the independent valuation of KWV’s land and buildings performed this month; and an independent valuation on KWV’s art collection performed last May.

In evaluating the reasonableness of the offer, KPMG considered the rationale for the HCI offer, KWV’s share price in the 30 days before the offer and the “potential exit mechanisms available for KWV shareholders and the liquidity of the over-the-counter trading”.

The mandatory offer by HCI, which was announced on December 22, followed the JSE-listed company’s purchase last month of 688 KWV shares at R8.50 a share. This acquisition pushed HCI’s stake in the wine and brandy producer above the 35 percent level that triggers a mandatory offer.

KWV’s shares are trading in the over-the-counter market at R9 each, which indicates that few minority shareholders are likely to accept the offer. The largest minority shareholder, Withmore Investments, with 18 percent, said last week that it would not accept the offer.

If Withmore does not accept, HCI will not be able to invoke section 124 of the Companies Act. This states that if HCI’s offer is accepted by at least 90 percent of shareholders then it can compulsorily acquire the remaining shares.

Source: Business Report