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It’s down to the wire today as shareholders face off in a 9am vote on the future of South Africa’s biggest retailer, Edgars Consolidated Stores (Edcon).

April 16, 2007

By Mike Cohen and Godfrey Mutizwa

Johannesburg – It’s down to the wire today as shareholders face off in a 9am vote on the future of South Africa’s biggest retailer, Edgars Consolidated Stores (Edcon).

The all-important meeting will see Edcon shareholders either accepting or rejecting Bain Capital’s $3.5 billion (R25 billion) takeover bid.

Four investors have indicated they plan to vote no while six are backing the bid. The buyout requires support from shareholders owning three-quarters of Edgars’ voting stock. Those against include the Public Investment Corporation (PIC). It joined Templeton Asset Management’s Mark Mobius in rebuffing the offer.

The PIC opposed the R46 a share offer because it wanted to remain involved in the company, not because it was unhappy with the price, said PIC chief executive Brian Molefe.

The PIC, which manages South African civil servant pension funds, “notified our transferring secretary they will be voting against the bid”, said Tessa Christelis, Edgars’ head of investor relations.

The PIC held 3 percent of Edgars, Christelis said. Its holding previously, according to Edgars’ annual report for the year to June 2006, was 10.1 percent, which would have made the corporation the retailer’s largest shareholder.

The bid had generated substantial activity in Edcon stock, with “about 60 percent of our market capitalisation … traded” since the bid was announced, including part of the PIC’s holding, Christelis said.

The shares fell 8.3 percent on Friday before closing 0.8 percent lower at R44.50. Edgars was the most heavily traded stock on the JSE, with 53.8 million shares changing hands.

Mobius, who holds 2.5 percent, said last week the bid was at least 50 percent too low.

Some agree. “There is a definite possibility the bid could be blocked, because it is a unique asset,” said Mark Gordon-James, a fund manager at Aberdeen Asset Management, which owns 2 percent of Edgars and opposes the bid. “It’s cheap on an absolute and relative basis. The international investors I’ve spoken to feel a similar way.”

About half of Edgars shares were now held by investors based outside South Africa, Christelis said.

Shareholders representing 9.5 percent of the company have rejected the bid from Boston-based Bain. Columbia Wanger Asset Management, which has 2 percent, has also opposed the bid. Alex Stanton, a spokesperson for Bain Capital in New York, declined to comment.

Those backing the bid are confident. “It still looks like there is more than enough support for the deal,” said Craig Pheiffer, the chief investment strategist at Sasfin Holdings.

Those in favour are Abvest Associates, which owns 1 percent, Old Mutual Investment Group SA, Sanlam, Stanlib, Coronation and Gryphon Asset Management.

“In our view, it would be quite a stretch for Bain to sweeten the offer,” said Sanlam retail analyst Roy Chapman. “It’s a fair price.”

“The offer is a reasonable offer. We can use the money elsewhere and get a better return,” said Errol Shear, Abvest’s chief investment officer.

The takeover would be South Africa’s largest leveraged buyout, where record spending stoked retail sales growth. Edgars, which has more than 900 stores and owns the Jet clothing chain, has doubled its sales in four years. – Bloomberg