Stephen Gunnion
4 November 2008
Johannesburg — IN WHAT is likely to become a drawn-out battle, the New Zealand Stock Exchange (NZX), the largest shareholder of the Bond Exchange of SA (Besa), says it will not support the JSE's proposed R173,2m takeover of Besa at its current price.
In a statement yesterday, NZX, which owns 22% of Besa, said the JSE offer was "extremely low" and "very significantly below fair value".
The JSE's bid, unveiled a week ago, is at a 106% premium to Besa's net asset value of R84m. However, that excludes Besa's Guarantee Fund, which was worth about R100m at the end of last year.
NZX said the JSE's bid, worth R90 a share, valued the business at only R6m above the cash value of the business in a dissolution.
"If Besa were to cease operations, the Guarantee Fund would go to shareholders," NZX said.
"If the value of defending this takeover is factored in, it would be more financially beneficial to Besa shareholders to pass a dissolution resolution than sell to the JSE at the price on offer."
However, JSE deputy CEO Nicky Newton-King said it was difficult to see why R90 was considered too low when R73 was considered a fair level to raise capital on three weeks prior to the JSE's bid.
Besa demutualised last year and recently raised R80m through a rights issue. CE Garth Greubel said independent financial advisers had been appointed to evaluate the JSE's bid, after which the Besa board would give its view. However, the JSE still had to submit formal offer documents by November 26.
Newton-King said the JSE would produce the document as soon as possible to give Besa's board the chance to comment on the bid and for shareholders to understand how it arrived at its valuation.
"One does expect people to have a debate about evaluations in bids," said Newton-King.
"We have outlined in detail the reasons for the offer, which we believe is fair."
Greubel said some of the considerations that shareholders should also take into account included the valuation of Besa's business, the underlying health of the bond market, Besa's stand-alone growth prospects and competitive forces in the market.
"The underlying bond market is deep and liquid and has been growing," Greubel said.
He said Besa's demutualisation, recapitalisation and growth plans had the strong support of its shareholders.
The R80m raised from the recapitalisation would be used for Besa's new clearing platform, BondClear, and to launch into the fixed income futures market.
Greubel said the JSE's offer also did not take this cash into consideration.
He said competitive pricing was also important as Besa competed with the JSE's interest rate market, YieldX.
"They have very aggressive pricing proposals, which keep us honest. That drives prices to the right place," Greubel said.
Andrew Canter, chief investment officer at bond specialists Futuregrowth Asset Management, said the market's lack of price discovery (where all participants in a market can see prices in real time) would be addressed in the case of a takeover by the JSE and would lead to increased transparency of prices.
"We have been concerned for quite a long time about the development of the bond market and Besa's capacity and will to promote the development of the market," Canter said.
"I question Besa's independence as an exchange. The JSE has the scale, capacity and muscle to be a properly independent market mechanism."
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