Dis-Chem founders Ivan (71) and Lyn Saltzman (69) have begun reducing their majority stake in the pharmaceutical retailer. In the coming months, they will sell between R5.4 billion and R5.5 billion in shares to various investors.
The group announced Tuesday night that the family would sell 64.5 million shares (or 7.5% of the company) through an accelerated book-making offering. On Wednesday morning, he confirmed that this bookstore had closed “after strong demand.” This stake was sold at R30.30 per share, which represents a 4% discount on yesterday’s price. Ivlyn (Pty) Ltd (the investment vehicle of the founders, whose final shareholder is Saltzman Family Trust) raised R1.96 billion through this sale.
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The family will sell another 32 million shares (or 3.75% of the group) to a “select number of key senior executives who are critical to meeting the strategic priorities of the company.” He says that current CFO Rui Morais is included in this. The group revealed in its 2021 annual governance report that Morais had been “approved by the nominating committee as the successor” to current CEO Ivan Saltzman. This followed shareholder and investor concerns regarding succession planning.
The family has agreed to fund the management retention plan from the supplier at no cost to Dis-Chem and the group has said that “participating management will be subject to a 10-year lockdown.” Details will be negotiated during the next closed period and the group says details will be announced in conjunction with the release of its interim results in November. Given this moment, it is highly likely that Saltzman will step down as CEO following the release of the group’s results.
The group also announced a third transaction in which the family will sell an additional 86.5 million shares (or 10.05% of the group) to a consortium of BEE investors. The group says that the sale of this tranche, “although it was agreed in principle, is still subject to the fulfillment of certain conditions, including the final approval by one of the members of the BEE consortium and the conclusion of the associated financing agreements before of August 31, 2021 “. If this is not finalized by then, the group says “there is no certainty that the BEE tranche will be completed in its current form, or at all.”
Their most recent broad-based black economic empowerment verification certificate (September 2020) reveals that the group has a “non-compliant” level. It has a score of 26.48 out of 111. Based on voting rights, its black shareholding is currently 4.46%. It has a 0% BEE acquisition recognition.
Before these transactions, the founders owned 52.67% of the business (or 453 million shares). Once the three transactions are completed, this stake will be reduced to 31.4% in the group. The family agreed to a 360-day lockdown on the remaining property, which seems to indicate that it has plans to ditch an additional portion of this thereafter.
|Bookbuild||64 506 336||1.96 billion rand|
|Management retention scheme||32 253 168||977.3 million rand *|
|BEE Consortium||86 468 741||R2.59 billion **|
|Total||183 228 245||5.4 billion rand|
* Assuming a price of R30.30 per share
** Assuming a price of R29 per share
By going public, the family’s stake fell from 66.9% to just over the 52% mark, as that part of the shares they owned was repurchased by the company and sold to new investors. In this transaction, majority shareholders raised around 1.6 billion rand.
Memorably, the founders scored twice on the list. Once, through this share buyback as part of the listing, and secondly, because the company declared substantial dividends before listing. To pay these dividends, he assumed a debt of more than R2 billion. In the year prior to listing, the company paid more than R2 billion in dividends to shareholders. While it generates a lot of cash, it is unlikely that the group’s bank overdraft would have risen to more than R2.3 billion if it had not paid those dividends.
In that year before listing, the Saltzmans (with their then 66.9% stake) received R1.3 billion in dividends.
The family remains a related party, having considerable stakes in the group’s main storage facilities. The group pays a rent of more than 100 million rand a year for these stores. The lease liability for these related party transactions (including related party stores) amounts to R 1 billion. Following criticism from shareholders, it said in its 2020 annual report that “the group is … pushing forward the process of selling its distribution centers.” The group has not reported any progress on this to date.