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NIVEUS PLAN GETS TONGUES WAGGING

The proposal to exchange gaming assets for Tsogo shares sets off speculation about whether investment vehicle will remain listed.

Niveus, the cash-flush specialist investment vehicle controlled by empowerment conglomerate Hosken Consolidated Investments (HCI), is the subject of much market conjecture after proposing to sell its core alternative gaming assets to casino operator Tsogo Sun late in 2016.

HCI is also the majority shareholder in Tsogo.

The sale by Niveus of its Vukani limited-payout machine operations and its Galaxy Bingo assets (including shares in the small Kuruman casino in the Northern Cape) is widely seen as HCI looking to consolidate its gaming interests in one listing.

The terms of the deal will see Tsogo acquiring Vukani and Galaxy in exchange for the issue of 160-million Tsogo shares. This values the alternative gaming assets at about R4.3bn, giving Niveus — which is 52.8% held by HCI — an interest of about 16% in the enlarged Tsogo. HCI’s direct interest of 47.61% in Tsogo will effectively increase to 56%.

The question is whether Niveus — which was spun off from HCI only in 2012 — will endure in the longer term as a separately listed entity.

After the sale of Vukani and Galaxy, Niveus will be left holding the significant minority interest in Tsogo, a 57.13% stake in La Concorde Holdings (the old KWV Holdings) and a cash pile that eventually will top R1.1bn. La Concorde essentially comprises the property (mainly the Paarl-based Laborie wine estate and the La Concorde office block) and art assets that were left over after the operating assets of liquor group KWV Holdings were sold to Vivian Imerman’s Vasari at the end of 2016.

The value of Niveus’s Tsogo stake will dwarf the inferred value of the La Concorde assets. This mirrors parent HCI, where the anchor investment in Tsogo is far larger that any other segments of the investment portfolio (which comprises media, industrial, transport, resources and property).

Like HCI, Niveus will probably also be viewed as a proxy for Tsogo. Already, the market capitalisation of Niveus — about R4.3bn — matches the inferred value that the Tsogo deal places on alternative gaming. This might be interpreted as meaning the market is not confident that much value will be unlocked from La Concorde’s property assets in the near term.

However, market watchers say it is unlikely that the adventurous HCI will be keen for Niveus to remain listed on the JSE as a passive investment company with a core investment in one listed counter.

The steady cash inflows from the sale of KWV’s operating assets will allow considerable scope for strategic investments.

Market watchers also say the investment in Tsogo will generate sumptuous dividend flows — probably enough for Niveus to secure loan funding to redevelop Laborie into a more compelling leisure asset and perhaps revamp the La Concorde office in Paarl into a more attractive commercial hub. The old KWV artworks — which could have a value of between R35m and R100m — could also net La Concorde a substantial windfall.

The strategic direction is difficult to gauge at this juncture. In Niveus’s annual report, CEO Andre van der Veen mentions pursuing strategic acquisitions “with asymmetrical risk-reward profiles” where the company can leverage its management expertise and experience. But no specific industries or business profiles were targeted.

It is possible that Niveus could use its cash pile and dividend flows for internal corporate actions. This might entail offering to buy out minority shareholders in the unlisted La Concorde, or Niveus could buy back its own shares.

There is murmuring, meanwhile, that HCI should buy out minority shareholders in Niveus and delist it from the JSE, though that might not be feasible.

HCI CEO Johnny Copelyn said recently that the investment company still carried substantial debt at the centre. He also indicated that HCI preferred to do deals of between R250m and R500m. It would cost close to R2bn to pitch a cash-based buyout of minorities at Niveus.

The market’s difficulty in recent years to properly value HCI’s shares in relation to the intrinsic value also makes a minority buyout based on a share swop unlikely.

Source: Business Live – Mark Hassenfus