/ 2 September 1994

Penrose Shareholders Will Lose

Jacques Magliolo

THE suspension of Penrose could be the opportunity many experts have been waiting for to ask for government intervention and a total restructuring of the educational text book and printing market.

That aside, what will happen to Penrose’s assets and how will this affect shareholders? After all, they cannot sell the shares now that the company has been suspended from trading on the JSE.

Under such conditions analysts look at two possible scenarios. Firstly, the company could be sold as a going concern and, secondly, the company’s assets could be sold piecemeal. In this case, there is a strong possibility that either could take place.

The first is the more obvious choice as the education market is a lucrative one and Penrose offers the buyer a fully operational organisation with an existing client base. Already the wolves are at the door, in the guise of Citizen newspaper owner Perskor and Thebe Investment Corporation-controlled Macmillan Publishers. This is not surprising. Penrose restructured its existing infrastructure to move into the education market, setting up four divisions. These included educational printing, financial communications, diaries and commercial print. In addition, Penrose acquired the entire printing business of Gutenberg for R4-million.

The sale of the company’s assets piecemeal is likely because a buyer would probably “take what he wants and dispose of that which does not fit into his organisation”, says an industrial analyst.

If the company is sold as a going concern the buyer could either delist the firm and repay shareholders or relist the firm and reissue new shares. Under the first option loans do not have to be repaid and thus shareholders would receive more funds per share than in a total liquidation.

So what could shareholders receive if the company is wound up and asset stripped? Chairman Albert Alletzhauser said he was asking 140 cents a share for the seven million Penrose shares he acquired in 1993. This represents 29 percent of the total issued capital of 21,7-million ordinary shares.

This is optimistic if one looks at the pre-suspension price of 100 cents and the final 45 cents a share quoted on the day of the suspension. This last figure also reflects the net asset value of the firm. Yet even this figure is twice the estimated value per share that shareholders would obtain if the company’s assets were stripped and sold.

Company law states that creditors always get paid before ordinary shareholders. In March this year the company’s shareholders funds (represented in the financial books as assets and investments) was valued at R9,3-million.

If total borrowings of R4,3-million are subtracted, the company is left with a net amount of R5-million for distribution to shareholders holding 21,7-million shares in issue. Shareholders would thus receive a mere 23 cents a share.