Jacques Magliolo reports on Pepgro’s moves to improve=20 its competitiveness both locally and internationally=20
Pepgro’s R208-million rights issue came as no surprise=20 to market analysts. The move is yet another strategic,=20 well-planned step to make the group stronger and better=20 prepared for local and international competition, says=20 Mathison & Hollidge industrial analyst John Thompson.=20
Market experts indicate that, following the 1994 Pepkor=20 rights issue in the United Kingdom, Pepgro’s control=20 over the company was diluted to 48 percent from 53=20
Pepkor financial manager Tiekie du Toit confirms that=20 this is the company’s intention. “According to=20 Johannesburg Stock Exchange requirements (regarding=20 pyramid company control over its subsidiaries) we had to=20 have the issue to regain that lost control.”=20
Yet the fully underwritten rights issue will do more=20 than simply replace those lost shares. Calculations show=20 that the group only needed R100-million to achieve its=20 control target.=20
Du Toit says: “The issue will enable the company to=20 repay debt of R90-million and to pursue investment=20 opportunities in the group’s subsidiaries.” =20
Market speculation is that the company plans to use the=20 funds to increase its stake in stationery company=20
Analysts have over the past year repeatedly said that it=20 is simply not Pepkor chairman Christo Wiese’s style to=20 acquire a minority stake in companies.=20
Du Toit denies this, saying that the only asset in=20 Pepgro is Pepkor shares. However, in assessing Pepkor=20 over the last five years, a trend has undeniably=20
The group moves quickly and constantly to adapt to=20 changing market conditions and, unlike a host =20 of other South African companies, undertakes mergers and=20 acquisitions without negatively affecting cash flows,=20 gearing or shareholder control.=20
Speaking to Pepkor deputy chairman Arnold Louw at their=20 Parow head office, it becomes clear that the group=20 adheres to a different philosophy to other manufacturers=20 and retailers. While Pepkor offices are down-to-earth,=20 beneath these humble exteriors one can definitely find=20 lessons for other businessmen.=20
How is it possible for Pepkor to grow and continue to=20 produce solid results, when others have tried in the=20 past and failed dismally? =20
For instance, former W&A chief executive Jeff Liebesman=20 failed to keep his group from folding, although his=20 product was in great demand. Chief executive Jeff Austin=20 also failed to keep furniture giant Rusfurn from being=20 split up, despite the group consisting of popular mass=20 retailers like Dions and Russells.=20
Louw says: “We created a chairman’s office, which=20 consists of Wiese, financial director Cornus Moore and=20 myself.” Instead of trying to control the entire group=20 from head office, each of Pepkor’s subsidiaries has its=20 own board of directors.=20
“We deviated from central organisational control to give=20 us more time to continually assess the market and to=20 keep the group in line with those changes,” says Louw.=20 Although this means that subsidiaries “run as if they=20 are owned by the directors, we do have regular=20 interaction with the managing directors of those=20 companies,” says Louw.=20
So why the rights issue, why Waltons and how does a move=20 into overseas markets fit into an overall strategic=20 plan? At the chairman’s office, Louw says that political=20 changes in South Africa favour a strong move to=20 implement a reconstruction and development programme=20 (RDP), which means mass markets will benefit.=20
Waltons fits into the RDP’s focus on improving and=20 upgrading schooling. And, on the health care side of the=20 RDP, Louw believes that — along the lines of overseas=20 retailers — South African shops will be permitted to=20 sell more generic products in future.=20
“We will be able to use Shoprite/Checkers stores to=20 target that market,” says Louw. Regarding the company’s=20 reasons for moving into overseas markets, Louw says that=20 “foreign markets provide us =20
with information and knowledge, which enables us to=20 change our operations to compete with overseas players.”=20
Pepkor has a 62 percent stake in UK retailers Brown Jackson, has moved into Africa (Botswana and Namibia),=20 and now plans to move into Zimbabwe. =20
Pepkor is negotiating to buy, for R50-million, a=20 Zimbabwean company, which owns and trades as 100 Power=20 Sales stores.=20
“If we are successful in this venture, we will look to=20 Zambia and possibly Mozambique to open Shoprite/Checkers=20 stores,” says Louw. “Christo is a deal maker and is now=20 in an aggressive mood,” he concludes.=20
After a year of rationalisation, which included a=20 repositioning of its food companies, diversification=20 into Waltons and building up foreign based companies,=20 the rights issue will be followed by a capitalisation=20 issue to strengthen its operations and enhance=20 tradeability of its much sought after shares.=20