IT is 1996 and Hunyani Holdings, a paper and plastic manufacturer listed on the Zimbabwe Stock Exchange (ZSE), has just changed its fiscal year to align with a new major shareholder.
In a bold move, the new major shareholder, whose name we will conceal for now, acquired Hunyani through an asset swap, trading its subsidiary, Printing Holdings, for equity.
At the time, the acquirer held fast to its stake in Hunyani, which supplied crucial inputs to its other subsidiaries.
Fast-forward to 2014, a South African technical partner to Hunyani became the controlling shareholder through a reconstruction scheme, rebranding Hunyani as Nampak Zimbabwe to align with its continental operations.
And while the 1996 acquirer’s stake had waned by this point, the story was far from over. Now, nearly a decade later, the market is abuzz as TSL Limited, the mystery player from 1996, has returned, offering US$25 million to reclaim a 51,34% stake in Nampak Zimbabwe.
Although the TSL Holdings bid for a controlling stake in Nampak might have come as a surprise to the new crop of market participants, anyone who has been in this market long enough might say ‘it makes so much sense’.
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Wait, are we not getting ahead of ourselves.
Who are Nampak and TSL and what on earth is going on?
Nampak Zimbabwe Limited is a manufacturer of packaging products.
The group owns five companies, including Hunyani Papers & Packaging and Megapak Zimbabwe, well-known for its green water storage tanks.
Hunyani Paper and Packaging is a key supplier of double-wall board cases for tobacco exports, which was probably the main attraction for TSL.
Nampak’s South African parent, also named Nampak, has operations across the continent.
However, the group was worried about the increased competition and currency instabilities in Zimbabwe, which they cautioned might distort results.
The South African parent company has recently been shedding assets, with divestitures in Nigeria, Zambia, Malawi, and South Africa itself. In fact, these divestitures - Nampak Bevcan Nigeria, Liquid Cartons operations in Zambia, Malawi and South Africa, and Plastic Tubes in South Africa - are part of the company’s strategic turnaround pillars under the new leadership of Phil Roux.
The new leadership aims to revitalise the group’s core strategy by improving capital allocation. Selling the Zimbabwe operation, which contributes 6% of Nampak’s revenue and just 2% to its operating profit, fits with the parent company’s strategy, particularly as Zimbabwe’s currency volatility poses operational risks.
Roux has said Nampak had a poor capital allocation challenge that he observed upon taking over.
Since taking over, Nampak has disposed of assets worth US$68,5 million, excluding the Zimbabwe deal. Part of the proceeds from these disposals has gone towards expunging the group’s debt.
On the other hand, TSL is a conglomerate domiciled in Zimbabwe and listed on the ZSE.
Although it started as a tobacco auction floor back in the 1950s, the company has diversified over time. Its business units now include agriculture, logistics, real estate and services.
It owns and operates some of the household brands in Zimbabwe, including Agricura, Tobacco Sales Floor (TSF) and Propak.
So why would TSL, of all the potential suitors, bid for Nampak?
To put things into perspective, after Nampak South Africa, Delta Corporation is the second largest shareholder and Old Mutual Life Assurance the third major shareholder in Nampak.
The bigger question is why TSL would offer to acquire Nampak at a premium. I have to admit that I am not a big fan of any ZiG to USD conversions or vice versa when doing analyses. However, in this case, I have no choice.
With Nampak’s holding company in a selling mode, TSL has chosen this moment to reenter, not merely as a suitor but as a bidder willing to pay a premium — potentially 60% to 150% above market value.
This valuation is intriguingly close to TSL’s previous sale price in 2018 when it sold its remaining 16,53% stake in Nampak for US$14,7 million, a price that suggested an overall valuation between US$50 and US$60 million.
Although TSL’s current bid implies a valuation of US$48,7 million, it comes at a relative discount, accounting for various strategic factors beyond pure market price.
The good news is that the ZSE price has started adjusting since this announcement. This realisation also helps answer perhaps the most debated question in modern finance, are markets efficient?
One cannot help but wonder what the boardroom discussions at TSL must have been like — are they tense and perfumed with the aroma of strong coffee, or filled with nostalgia, where TSL looks at Nampak as an old flame, guided by history as much as market metrics?
Hozheri is an investment analyst with an interest in sharing opinions on capital markets performance, the economy and international trade, among other areas. He holds a B. Com in Finance and is progressing well with the CFA programme. — 0784 707 653 and Rufaro Hozheri is his username for all social media platforms.