GOLDEN ARROW ADDS CASH TO EMPOWERMENT BOW Did empowerment investment company Hoskens Consolidated Investments (HCI) pay too much to bring Cape Town-based Golden Arrow Bus Company into its sights? Last month HCI – in conjunction with its financial services subsidiary Mettle – officially clinched the deal to buy Golden Arrow for a reduced price of R250m (the original purchase offer was R270m). Some valuation questions may be raised when comparing the HCI/Golden Arrow deal to the empowerment transaction unfolding at bus company Putco, which has a markedly bigger fleet servicing the Gauteng and Mpumalanga regions. The terms of Putco’s empowerment transaction with Safika Holdings and DEC Investment Holdings value the bus group at just under R160m. That’s nearly R100m less than Golden Arrow and perhaps a startling difference in value for two well-established bus companies. Mettle director Gavin Jones argues the Golden Arrow transaction is fair to all parties. “HCI is certainly not over-paying for Golden Arrow…. We crawled all over the company during the due diligence.” He believes the Golden Arrow and Putco empowerment deals are not comparable. “Golden Arrow is the sole supplier of bus services in the Cape Town area, and – unlike Putco – the group also owns all its properties. Golden Arrow is also a very profitable company and certainly does not take any steps back from Putco.” While details around the Golden Arrow deal do not disclose the turnover or profit levels for the bus company, HCI has pencilled in, retrospectively, the effects of the the transaction on the group’s six months to end-September 2003. With Golden Arrow on board (at least in terms of profits generated in the six months to end-December 2003), HCI’s earnings would have surged from roughly 95c/share to 122c/share. At that juncture HCI had an average of just under R108m shares in issue, which suggests Golden Arrow’s interim profits, based on the 27c earnings differential – were in the region of R30m. Without knowing whether Golden Arrow is subject to “seasonal” fluctuations in earnings its seems safe to assume that the company’s after-tax profits could trundle in at around the R50m mark. That would suggest HCI – which, incidentally, were not the only bus bidders – is snapping up Golden Arrow at a forward earnings multiple of five times. Putco’s attributable profit in the year to end-June 2003 was R42m, which sets its current empowerment valuation at a historic price:earnings multiple of less than four times. Overall then, HCI may not have done a bad deal with Golden Arrow. Possibly HCI will not have succeeded with its delisting endeavours by year-end when it must report interim results. The effect of an empowered Golden Arrow will be fascinating to gauge

Source: Finance Week – Marc Hasenfuss