Lynda Loxton
SOME analysts were somewhat sceptical this week about the much-publicised decision by the Rupert family empire to merge their tobacco interests in Rembrandt Group Limited (Remgro) and Swiss-based Richemont Securities AG.
The merger will create a new, unlisted global tobacco giant, to be known as R&R Tobacco Holdings, which will incorporate Remgro’s tobacco business in South Africa and Richemont’s wholly-owned Dutch subsidiary Rothmans International BV.
It will be the fourth largest tobacco group in the world.
Although Remgro has said that the aim of the merger was to position it “to participate in any potential industry consolidation” while giving Richemont entry to the South African market, few see any immediate or tangible benefits arising out of the deal.
“It will not increase Remgro earnings as it will get a third of the profits of the new group based on its existing tobacco interests,” said one analyst.
Others were more cynical.
“The bottom line is that this will help (chairman) Johan Rupert realise his life-long ambition of extracting as much money out of South Africa as he can,” another analyst said.
Rupert has long railed against the government in general and the Reserve Bank in particular for not allowing local firms to invest freely
“He obviously feels that he has invested enough in South Africa and that it is time to go abroad in a bigger way … there will certainly be no material benefits here,” the analyst said.
“It is a certain bet that the new company will be based abroad and not all profits will find their way back here.”
He said there was nothing “sinister” in this, but a reflection of the fact that some profits would be held back by the new company for further investment elsewhere, probably in Eastern Europe, which is a hot favourite among tobacco companies these days.
Remgro will have a one-third interest in the new company, which will pay dividends bi- annually of at least 50 percent of its consolidated attributable income. It will have a joint operating profit of sterling 700- million while its net tangible assets will be more than sterling one-billion.
“They also claim that the new company will be able to undertake an extensive rationalisation of production facilities in Africa, but to what extent that should precipitate this move in questionable,” the analyst said.
There has been some speculation that Remgro’s next step could be to unbundle or restructure its industrial assets. But troubled subsidiaries such as Hunt Leuschars and Hepburn (HL&H) are believed to require huge injections of cash to get back on their feet and were not likely to be prime candidates for sale for some time.
Both Remgro and Richemont last week reported strong results, which, together with the news of the merger, significantly boosted share
“But I’d rather be in Richemont than Remgro at the moment,” said one analyst.