/ 8 August 2008

Unbundling of BAT hailed as ‘fantastic deal’

Richemont and Remgro’s unbundling of British American Tobacco (BAT) to shareholders — and its secondary listing on the JSE — has been heralded as “a fantastic deal” by some local analysts.

“It’s a lovely deal — they’ve really managed to pull a clean rabbit out of the hat,” one analyst enthused.

The two companies — controlled by South Africa’s Rupert family — announced on Friday morning that they are unbundling about 90% of their estimated 30% stake in BAT to shareholders, with the remaining 10% being channelled into a new investment vehicle, Reinet.

Both BAT and Reinet will be listed on the JSE.

The deal was described as “huge” for South Africa by analysts. Remgro said on Friday morning that the successful listing of BAT on the JSE would put the company in the top three by market capitalisation of companies on the main board.

Remgro CEO Thys Visser added that with a current market capitalisation of about R560-billion, it would put it in the same league, or possibly higher, than the current top two — resources giants Anglo American and BHP Billiton.

Analysts said the deal would provide an opportunity for shareholders to participate in an international investment fund without using existing foreign-exchange allowances and tradability on the JSE.

One analyst cautioned, however, that with only about 14% to 16% of BAT held by South African shareholders, the deal could be “deemed to be an inbound listing by a foreign entity”.

“In terms of the inbound listing rules these shares will form part of the foreign holding allowance and if this breaches the 20% threshold allowed, domestic shareholders will have two years to either sell their BAT shareholding or to rebalance their portfolios to remain within the prudential limit,” he said.

“The real benefit here is the tax benefit,” the analyst added. “It’s lower than expected.”

Explained another: “A tax of 1,5% of the BAT stake will apply to Remgro shareholders which amounts to around R850. That’s good news. We had anticipated a 6% tax.”

Swiss- and Luxembourg-listed luxury-goods group Richemont, which also has a South African listing, said the restructuring addresses the changes to tax legislation in Luxembourg, which would make the current group structure significantly less attractive to unit holders from December 31 2010 onwards. — I-Net Bridge