Nicola Jenvey
27 October 2005
Durban — An Anglo American buyout of Tongaat-Hulett demanded a R7,5bn investment, prompting analysts to speculate yesterday that the sugar and aluminium giant may be sold piecemeal.
Anglo's restructuring review yesterday confirmed Tongaat as a noncore asset nearly five years after divesting was first mooted. In recent years Tongaat has divested its noncore assets, building a focused sugar, aluminium, starch and glucose group.
Drought and the strengthening rand hammered the group in the year to December 2003, prompting a dramatic restructuring in a bid to grow shareholder value.
In the 2004 annual report CEO Peter Staude said Tongaat was a strategically placed and focused business with an effective balance of expertise, size, diversity and growth opportunities. Management had created a platform from which to deliver "substantial earnings growth and shareholder value", reflected in a share price that has risen from R29 to the current R76 in two years.
Anglo's strategic review signalled that the Tongaat board would "examine ways of unlocking greater value for shareholders".
Analysts said a 10% discount to the current share price attached a R7,5bn price tag to the group and took into account the potential 21% per annum growth in headline earnings Tongaat was expected to achieve to 2009.
Tongaat has a market capitalisation of close to R7,8bn.
Breaking Tongaat into components brought three established businesses to the market. Starch and glucose company African Products would carry a R1,2bn price tag, Tongaat's 50% share in aluminium group Hulett Aluminium R2,95bn and the combined Tongaat-Hulett Sugar and property group Moreland Developments R3,9bn.
Because Moreland develops land on which the sugar division formerly grew cane, analysts said the two companies were unlikely to be sold separately.
Analysts speculated that African Products could be acquired by a competitor or a customer, particularly among the country's food multinationals. Hulett Aluminium may be attractive to a major aluminium player like Alcan, Alcor, Novelis or Norsk Hydro.
Canadian group Alcan has been in discussions with the government for several years regarding the construction of an aluminium smelter at Coega following its acquisition of French rival Pechiney. Acquiring the downstream aluminium business Hulett Aluminium provided a key link in the supply chain.
Analysts said competition authorities were unlikely to approve rival sugar companies Illovo Sugar and Transvaal Sugar acquiring the Tongaat-Hulett Sugar and Moreland divisions.
In February Staude told the Investment Analyst Society that African Products would benefit from lower input costs and volume growth. He said Hulett Aluminium was on track to boost operating profit to R655m against the R150m achieved in the year to December last year. Moreland was unlocking 11600ha of prime land for redevelopment and Tongaat-Hulett Sugar's restructuring afforded a R70m benefit to the group.
These initiatives were aimed at boosting shareholder value.
This had followed the "taking action" initiative Tongaat outlined in the 2003 annual report to boost shareholder value.
The initiative involved developing a new business model for African Products, transforming Tongaat-Hulett Sugar, changing Hulett Aluminium's product mix to achieve full capacity and accelerating Moreland's earnings.
The coastal strip between Durban and Richards Bay has evolved into one of southern Africa's fastest-growing development corridors.
Yesterday Staude said the announcement "confirmed Anglo's desire to exit from Tongaat" while also, however, shedding clarity on the future of the group after years of waiting.
He highlighted the fact that the group had "a spread of shareholders" and every option would be considered in the future.
Tongaat-Hulett Sugar and Hulett Aluminium were on track to deliver substantial growth in shareholder value, while Moreland had a 20-year development pipeline that included both company-owned land and investment opportunities in other projects.
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